The Federal Reserve has cut its Qualitative Easing program fairly substantially and very quickly. This program was buying 85 Billion dollars of mortgage backed securities until very recently. It was cut to 75 billion and then a month later to 65 Billion. Just a week ago, it was announced this program is going to 55 Billion per month.
As of now, and surprisingly, there has been no change to the interest rate picture. Government loans are still in the 4.25% rate for a 30 year mortgage. I would have suspected more market reaction but none has occurred. What should we watch?
First, many financial changes don’t show immediate reaction. These changes occurred in a very short period of time. To trend this, watch the Long, or 10 Year Bond. Mortgage rates track very closely to this indice and movement in this bond will almost certainly be reflected in interest rates. You might ask, why is this important?
It is important as it is part of what we refer to as the affordability index. That index is comprised of just two factors, home prices and interest rates. When they rise, homes become less affordable and thus take buyers out of the market.
I’ll watch the trends for you, but Bloomberg probably has the best source of information. They have mobile applications that are excellent and I highly recommend them if you would like to track trends yourself.