‘The Era of Sub-3% Mortgage Rates May Be Behind Us’: The Fed’s Policy Shift Could Have Major Repercussions for Home Buyers
September 24, 2021
As the Federal Reserve looks to curb high levels of inflation, its next moves are set to have a big impact on the mortgage market. And many people’s ability to purchase a home could hang in the balance.
The Federal Reserve warned on Wednesday that it’s close to being ready to taper the bond-buying program that’s been in place throughout the COVID-19 pandemic to boost the nation’s economy. In a speech following the central bank’s meeting, Fed Chairman Jerome Powell indicated that the bank could “easily move” to scale back those purchases when it meets again in November.
Additionally, the Fed signaled that an interest-rate hike could come sooner than expected in 2022.
“The forward guidance was pretty close to the most explicit that could realistically be expected,” Stephen Stanley, chief economist at Amherst Pierpont, wrote in a research note analyzing the Fed’s statement.
As part of the stimulus program, the Fed has purchased $40 billion worth of mortgage-backed securities each month. These purchases have pumped tons of liquidity into the mortgage industry, allowing lenders to drop interest rates to historic lows.
“The Fed’s aim was to maintain liquidity in the housing finance environment,” said George Ratiu, manager of economic research at Realtor.com. “I think it has absolutely achieved that goal.”
But reducing that bond-buying activity could have major repercussions for the mortgage industry—and the housing market.