There had been some hope over the last month or so that the Fed would act to compress mortgage interest rates back to the levels we saw in the first part of 2009. Based on the announcement by the Fed today that is probably not going to happen. As a result the rates at 5% or better may very well be gone for good. The hope is that we can at least hang on to rates at 5.5% or better for a while.
Here are some excerpts from a LA Times article on the subject:
The Federal Reserve signaled that it won’t try to do more than it previously planned to pull down mortgage rates and other long-term interest rates.
…For homeowners hoping to refinance at a lower interest rate, the Fed didn’t offer any fresh encouragement.
…
Nobody expected the Fed to make a change in its short-term rate. But some on Wall Street had hoped that the central bank would boost the $1.75 trillion it plans to spend to buy mortgage-backed bonds and Treasury securities for its own portfolio this year.
The Fed’s purchases, which began earlier this year, were aimed at keeping a lid on long-term bond yields and mortgage rates. But those rates have risen anyway, in part because of the Treasury’s unprecedented borrowing to fund rescue programs for the economy and the financial system.
…
Bernanke may have decided there was too much risk in trying to boost efforts to push long-term rates down, with the market leaning in the other direction. Besides, the Fed has said it views rising long-term rates as a sign that the economy is getting better.
“The Fed is not going to take further action, like ramping up asset purchases, to forestall rising long-term interest rates at this time,” said Scott Anderson, senior economist at Wells Fargo & Co. “They see the rate increases so far as a return to normalcy, the taking out of the depression scenario, so to speak.”
…
Could mortgage rates dive again? Sure — if the economy crumbles.
