Rates are going up, just not today
Posted by Tony Kawaguchi, RA on Tuesday, September 29th, 2009 at 2:17pm.Last week, the Federal Open Market Committee announced they were leaving rates unchanged. According to the statement released, in an effort to "provide support to mortgage lending and housing markets" they will "purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt."
However, what's important is that "they expect to gradually slow the pace of these purchases in order to promote a smooth transition."
That means that eventually rates are going up. We don't know when, as it depends on how fast the Fed decides to stop buying the MBS. Last year in an effort to stimulate housing, the Fed began purchasing the oversupply of debt. Without this help from the Fed, rates would have moved higher already.
Most likely, and hopefully, the Fed will wait until the economy and housing markets seem like they can handle higher rates, or until inflation begins to kick in. Either would be fine, as they are all too related at this point in the deflationary cycle.
Rates going up later means buying a house is cheaper now than it will be then. If rates go up even 1%, it would be like a $500k house costing you $550k instead. If they go up 2%, well you get the idea.
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