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.
