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Fed inaction causes mortgage rates to fall

 

As we now know, the Federal Reserve decided not to reduce their bond-buying program which has helped to keep mortgage rates low.

Markets may interpret this as a signal that the economy is falling short of the Fed’s expectations, and that it is somewhat weaker and more in need of continuing support than not. If this turns out to be the case, mortgage rates would probably decline modestly, at least for a time, but would tend to firm up again as we approach the next Fed meeting, and so on.

Mortgage rates fell last week

Thanks to the Fed’s inaction, mortgage rates declined last week:

  • 15-year mortgages: Managed to shed nine basis points (0.09 percent) from the previous week’s figure, sliding to 3.74 percent.
  • The overall 5/1 Hybrid ARM: Declined by nine hundredths of a percentage point (0.09 percent) to stop at a relative bargain of 3.38 percent for the week ending September 20.

Mortgage rates expected to decline further

With the Fed back out of the tapering game for at least a few more weeks (and perhaps longer, if the economy fails to continue to find traction), mortgage rates should be well supported.

However, a lack of move this time this may lead to some additional volatility in mortgage rates, should the economic data continue to prove solid, particularly as the next Fed meeting approaches. That’s a problem for a few weeks down the road. In the interim, we had lower mortgage rates in place last week and expect to have lower mortgage rates again this week, as we watch for more clues about economic trends.

As far as mortgage rates go, we think there might be a 10-12 basis point decline by the time the end of the week comes.

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