Tuesday, April 6, 2010

Fed Pulling The Plug

We have talked about this for months. The Federal Reserve Board has finally reached the date that they will no longer purchase Mortgage Backed Securities. The devastation of the secondary market for home loans was one of the major effects of the financial meltdown which occurred over a year ago.

The Fed took definitive actions to keep rates on home loans down as they kept overall rates down while the government took numerous other actions to right the financial ship. Now the Fed is ready to see if the private markets will pick up the slack and allow home loans to be originated and sold on the open markets and at a price that will not halt the economic recovery, particularly in the real estate sector.

Note that rates have already increased moderately in the past two weeks. There have been many explanations for this increase, including tepid response to government bond auctions. However, it is entirely possible that the tepid response was due to anticipation of this April 1 date.

Now speculation moves to another level as it appears we will ponder as to whether rates will continue to rise and whether the Fed will start selling some of the hundreds of billions of dollars in bonds they currently own. What will happen? No one actually knows. However, with rates still very low, housing prices down and the tax credit scheduled to end at the end of the April, this month could be the last of the great home purchase opportunities in history. The employment numbers just released for the previous month represent good news and the last minute rush to sell homes could be even better news. Let's just hope that things continue to improve and at this point even a slow pace is better that going in the other direction.

Milicki & Associates, Inc

110 Evans Mill Dr. Suite 103

Dallas, GA 30157


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