The Federal Reserve today announced that it will cut its monthly bond-buying program by $10bn a month from January. The best news about this announcement is that it eliminates the guessing game about when the FED was going to stop purchasing bonds which has been responsible for keeping the interest rates so low till 2nd Quarter of 2013.
Stock market response was a huge hike as some analysts were bullish on the prospects of major US companies which have taken advantage of the low interest rates to repair their balance sheets for a long time to come.
But what will the impact of QED easing be on home price?! Well, we anticipate mortgage interest rates will rise accordingly ay nd which will reduce the affordability of some buyers. As we saw the damage done by the interest rate hikes in the Summer of 2013; another hike in interest rates would push some home buyers will be off the market.
Ironically, the housing starts had reported the most robust numbers since 2007 with home builders very optimistic about the opportunities to sell their new developments. Given the shortage of inventory in most major metro areas; the optimism of home builders were understandable. What’s not clear is that if this easing and the resulting hike in interest rate will temper the home builders ability to continue to build more homes.
So, what should you do if you are in the market to buy a home!? Call your mortgage broker or loan officer and lock your interest rate for the next 2 months. You might have to pay a higher fee, but it could be well worth it since the rates will very likely rise in the next coming month.
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