Rates are at record Lows....Prices of homes are low....Don't miss out on this great opportunity!
"When the Fed talks, people listen. And last week, the Fed made headlines when Fed Governor Daniel Tarullo called for the Fed to engage in another round of Mortgage Bond purchases...or in other words, another round of Quantitative Easing (QE3). Read on to find out what this could mean for the housing market and home loan rates.
In order to really have an impact on housing, the Fed would have to announce something significant to get people to buy a home. Why? Because even now, with rates at historically low levels and incredible affordability levels, the sales pace in housing is tepid, due to structural problems in the labor market, which the Fed can't fix.
In fact, there is a lot to consider before the Fed starts expanding their balance sheet, and the biggest concern is rising inflation. Contrary to what the Fed has said about it moderating, year-over-year inflation is on the rise. The headline Producer Price Index (PPI) rose by a whopping 0.8% in the month of September, elevating year-over-year wholesale prices by a hot 6.9%. Meanwhile, the Consumer Price Index (CPI) for September rose by 0.3%, and while this was in line with estimates it pushed the year-over-year number to 3.9%. This is significant because the year-over-year figure was just 1.6% in January.
Remember, inflation is the arch enemy of Bonds and home loan rates. The concept is very simple: If inflation rises, investors in Bonds demand a higher yield to offset the lost buying power inflation imposes on a fixed payment. And as home loan rates ar
e tied to Mortgage Bonds, this would mean home loan rates move higher.
And let's not forget the ongoing drama out of Europe. French and German leaders will hold two summits in the span of four days to come up with a resolution to the European debt crisis. Whichever way this news goes could have a real effect on the markets, including Bonds and home loan rates."