It was the week before Christmas and the “Taper” was Announced?
The Federal Reserve announced a reduction in mortgage-backed security purchases starting in January. The short-term reaction was a spike in rates but the Fed isn’t done trying to keep rates low. The Fed stated, “In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”
Mortgage bond prices finished the week lower, which pushed rates higher. Rates improved Monday in response to better than expected productivity data. Unfortunately the improvements were short-lived as the Federal Reserve meeting loomed Tuesday and Wednesday. The Fed announced a reduction in asset purchases for January and rates shot significantly higher Wednesday afternoon. Stronger than expected Philadelphia Fed and Leading Economic Indicators data added fuel to the negative fire Thursday. There was a small reprieve Thursday afternoon but not enough to recover all of the earlier losses. Mortgage interest rates finished the week worse by at least 3/8 of a discount point.
Even with the news this week, the change in mortgage rates was relatively minor. We are still at 4.50% with 0 points for a 30 year fixed rate conforming mortgage and 4.25% for a Jumbo. Occupancy, down payment, property type and borrower credit score all affect rates, so our rate sheet is based on a fairly generic set of assumptions and is meant as a guide for the real estate professional. RATE SHEET CLICK HERE
If you are shopping this weekend – good luck with the crowds. If you are working – good luck selling some property.
All the very, very best to you and your families from the Jeff Baxter Mortgage Team!