The Federal Reserve stepped in with more buying of Mortgage Backed Securities (MBS), helping Bond prices recover from news of a weak Treasury Auction. Overall, home loan rates bounced around last week and ended the week very slightly improved.
But that said, we can’t push our luck and think the Fed will continue to step in and help support home loan rates…we have to remember that the Fed is actually winding down exactly this type of buying support.
The Federal Reserve’s purchases of MBS peaked at an average of $25 Billion per week back in May – and they are getting closer every day to being done spending their allotment of $1.25 Trillion. Since they announced that their remaining purchases would be rationed out until the end of March 2010 – but that they wouldn’t be making any additional purchases beyond the original commitment – the average purchases per week have been moving lower, down to $14 Billion per week so far in November.
Why is this important? Because home loan rates are based on MBS – so when the Fed agreed to be a big buyer, it helped provide a market and helped keep MBS prices high and home loan rates low. So as the Fed’s program wraps up and eventually stops, home loan rates are quite likely to be on the rise. So while rates are still very good, they may not be for long.