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3 Ways Fed Tapering Effects Mortgages

By
Real Estate Agent with Keller Williams Real Estate

3 ways fed tapering effects interest rates for mortgages - anna domzalski team sells newtown pa homes - call 215-504-2512

With the Federal Reserve recently deciding to taper its monthly bond purchases, many people are worried about the effect this will have on mortgage rates.  Surely rates will go up and homes will become unaffordable overnight, correct?  Well, not exactly according to real estate and mortgage experts interviewed by HSH.com, a trusted mortgage resource.  Here, we will provide their answers and discuss the effect it will have on the Bucks County, PA real estate market.

1.  All three experts agreed that the Fed's tapering of quantitative easing (QE) will have very little impact in the short term.  Their analysis also takes into account a rise in interest rates, which some say does not have much of an effect on obtaining a mortgage as does credit availability.  

2.  Rising mortgage rates will have a greater impact in the long-term.  As Peter Muoio, Ph.D., Managing Director at Auction.com, explains: "As rates increase further, they increase borrowing costs and will pressure monthly payments. This could put downward pressure on home prices and/or home sales could slow as a result."  In this type of real estate environment (should we get to this), cash will be king.

3.  It WILL affect the housing market recovery.  In an article from Mortgage Professional America, Marc Savitt, president of the National Association of Independent Housing Professionals, tells us: "I think this is not the time to do it, because it’s going to raise interest rates, and if you couple that with the announcement by the (Federal Housing Finance Agency) about loan level adjustments, you’re eroding the market for consumers at the worst possible time.  We don’t want to do anything to jeopardize a full recovery."  But, it appears as if that could happen with Fed tapering.  However, only time will tell.

Finally, there is a possibility that the Fed reinstates QE.  As Peter Schiff, CEO of Euro Pacific Capital, explains"I suspect that when the economic data begins to disappoint, the Fed will quickly reverse course and increase the size of its monthly purchases."  So, who knows?  After all is said and done, by February or March of 2014 this could all be a big nothing.  And that would be perfect for the spring real estate market!

As we can see, the news is pretty mixed.  However, we believe the outlook for the real estate market in 2014 in Bucks County is still very strong.  If you want to buy or sell a home, NOW is the time to have that conversation with a Realtor like me.  I am on top of the market both from a local and national standpoint -- and communicate with mortgage professionals regularly.  I can help get you the best deal for your situation.  All you have to do is call.

Image: CNN/Money

Comments (2)

Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

I agree that the markets should stay strong.  Have a very Merry Christmas.

Dec 23, 2013 12:41 AM
Irv Shnidman
Movement Mortgage - Pikesville, MD
Mortgages Underwritten in 1 Day! 410-581-9100

Certainly seems like a lousy time to "taper". We do need to stop printing $ out of thin air. This can't be helping our grandkids!

Dec 23, 2013 07:25 AM