QE3: Alphabet Soup or Powerful Economic Stimulus?

QE3 is a term that has figured prominently in financial news recently. This acronym doesn’t refer to an enormous ultra-luxury cruise ship, or to a new miraculous anti-aging enzyme, but instead to the latest round of an economic stimulus measure known as ‘quantitative easing’ which was put into action by the Federal Reserve on September 13, 2012.

What is QE3 and How Does it Work?          

Under QE3, the Feds purchase $40 billion worth of mortgage-backed securities monthly, causing demand for them to rise. Using your Economics 101 knowledge, you will correctly deduce that this causes their prices to rise and their yield to drop, driving down mortgage rates. This has the anticipated effect of inducing more spending, stimulating the housing market, and subsequently creating more jobs. Fed Chairman Ben Bernanke has indicated that this current bond purchasing program is open-ended and will continue until it results in a significant improvement in the labor market, which we assume means more than a few new counter jobs at McDonalds’.

Translation, Please?

So, what does this mean to the average American making informed decisions about home finances? The effects of quantitative easing are intended specifically to create momentum in the housing market. Mortgage rates, already temptingly low, sank to new record lows after the announcement of this new round of quantitative easing. If you currently own a home, now is a stellar time to evaluate refinancing options, especially if you are experiencing any challenges making your payments. If you’re considering buying a home or ‘trading up’, realize that even a small downward adjustment in interest rates can save you around $10,000 on the full term of a home loan, even if the difference in monthly payments appears insignificant at first glance. A loan that closely tracks the rate of inflation may even be a possibility if you have good credit and can make a sizable down payment.

Today’s Blue Plate Special: The Housing Market?

Experts disagree about the ultimate effects of quantitative easing on housing prices. Many qualified homeowners have already taken advantage of low rates, and the housing market experienced modest gains even before the confirmation of QE3. But keeping rates low can’t hurt, and makes this an especially attractive market for real estate investors and other qualified buyers. While mortgage rates are expected to remain relatively low in the wake of Bernanke’s assertion that he will continuously purchase bonds for as long as necessary to generate economic improvement, housing prices may be less predictable. If you’re interested in exploring the possibilities of the current market, please give me a call so that I can help guide you in appropriate decisions regarding the timing and pricing of your home purchase or sale. I will be happy to explain further these and other factors which are currently impacting the Pleasanton real estate market.