Mortgage rates close to long-term lows despite much talk

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“End Talk” refers to comments, speeches, or official statements about the policy of the Federal Reserve System (also known as the “Fed”) that talk about the timing and nature of the Fed’s reduction in bond buying activity. Wow! What a boring and potentially confusing sentence! Let’s try again …

Fed buys bonds– US Treasury bonds and mortgage-backed bonds (which, in turn, serve as the basis for mortgage rate pricing). This helps rates move or stay low. When markets think the Fed will stop buying bonds, rates run the risk of going higher.

The ongoing efforts to buy bonds began as a response to the pandemic. They helped stabilize the financial system and provided “accommodation” (an increase in overall economic activity to support the Fed’s inflation and job growth targets). As the pandemic has become more manageable, and especially since the economy has returned online, the Fed is increasingly discussing phasing out (or “narrowing”) bond buying programs.

IN the same thing happened in 2013, only there were much more on the market surprised by talking about the cone. This time around, the market knew that cutting emissions would be a natural milestone in the post-pandemic economic recovery. However, timing is of the essence when we talk about guaranteed market demand for bonds of $ 120 billion a month.

At the risk of stating the obvious, if the market believes The Federal Reserve will shrink sooner or later, which will put upward pressure on rates, all other things being equal. Conversely, if the market sees the Fed slowing down, rates could remain low or even lower.

The latter is, in fact, this week in a nutshell. Although the Fed did add vague hints of narrowing in a policy statement, and while Powell was not shy about admitting the ongoing talk of the cut, the markets were already expecting it. Concurrently with this admission, Powell also clarified that the economy is still “far” from the level of progress required to actually pull the trigger in a phase out. While some economists thought we would see such a trigger as early as September, Powell gave the impression that the discussion would continue on at least two more Fed meetings. This postpones the announcement until November – perhaps later – with a phasing out, probably not until early 2022.

In addition to this slower decision-making process, Powell was also involved in Mortgage-Backed Securities (MBS). specifically… He acknowledged that several committee members wanted to reduce MBS to Treasury bonds, but they were in the minority. In the worst case, it looks like the Fed may consider cutting MBS and Treasuries at different rates – still a victory over the MBS first scenario.

All of the above has allowed the bond market and therefore mortgage rates to remain at their highest level in recent memory. For the average lender, this means the usual top-tier 30-year fixed rates at a maximum of 2 percent.

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