April 19, 2010
Will mortgage rates rise?
The Federal Reserve has supported the housing market by buying almost all the mortgages taken by home buyers in the last year. This means the Federal Reserve owns the mortgages and takes the risks, rather than the banks. But this buying by the Fed will soon come to an end. Will this hurt the housing market? In particular, will it cause mortgage interest rates to rise?
Dr. Mike Walden, North Carolina Cooperative Extension economist in N.C. State University's College of Agriculture and Life Sciences, responds:
"This is a big concern that you hear registered. And experts think not. We don;t think that mortgage interest rates are going to rise as the Federal Reserve withdraws from buying up these mortgages. And the reason is that the Federal Reserve has long telegraphed -- they have told us -- they were going to do this months ago.
"And so the effects of the Federal Reserve's change will, in effect, have been priced in, if you will, already to mortgage rates. Markets always look ahead.
"I think the bigger issue right now that many economist worry about regarding the housing market is what happens when the latest tax credit for new buyers expires -- that $8,000 tax credit (and I think it is somewhat less for existing buyers) expires.
"Some economists worry that sales, which have actually been not too bad over the last few months, those sales have actually been borrowed against the future sales. And so that when that tax credit expires, people that would have bought homes without the tax credit months ahead have already done so, and we will see a big dip -- sort of a double dip, if you will -- in home sales.
"That, I think, is something more important to watch and economists will be keeping a key eye on trends in home sales."
Posted by deeshore at April 19, 2010 08:44 AM