Will QE3 End in 2013? The Federal Reserve started off 2013 with a bit of a stir over Quantitative Easing – and they haven’t even made a formal announcement over the program yet this year!
As you may know, Quantitative Easing is The Fed’s plan to buy mortgage-backed securities every month, in an effort to keep interest rates low and, thus, jump-start the economy. Currently, we are in the third cycle of Quantitative Easing, so the most recent program is referred to as “QE3”. Just before 2012 ended, The Fed said that QE3 was going to last until the national unemployment rate falls below 6.5% and/or inflation gets above 2.5%. At the current rate our nation’s economy is going, that probably would happen sometime in 2015. But now, The Fed is suggesting that QE3 could end much sooner – in 2013, to be exact! Less than a week after the ball dropped in Times Square, St. Louis Federal Reserve President James Bullard said that QE3 may be able to end this year if the nation’s unemployment rate keeps falling at its current pace. Bullard says he thinks America’s unemployment rate could drop from 7.8% at the end of 2012 to the “low sevens” by the end of 2013. At that point, he said, The Fed could take a “pause” from QE3.
So, what would that mean for housing?
The speculation alone caused mortgage rates to rise. In fact, within a few days of Bullard’s comments, rates rose to their highest levels in four months. Even if The Fed doesn’t follow through with the speculation, the comments alone were enough of a reminder to investors that QE3 is going to end eventually.
Does that mean it’s time to panic?
No. Experts say low rates alone won’t cause the housing market to recover, although they’re certainly a nice incentive to get people to buy.
The truth is, mortgage rates are like the “temperature” of the economy. The higher they go, the better the economy as a whole is doing. So, for them to spike like this, it’s a sign that America’s economy is headed in the right direction. If the economy was still as unhealthy as it was a few years ago, a few random comments wouldn’t be enough for them to go up. That alone may convince people to consider buying. And, remember, even though they’ve gone up a bit, mortgage rates are still incredibly low. In fact, they’re still only a fraction of what they were back before the housing bubble burst. So, they’re certainly still low enough to act as an incentive. In fact, this sudden rise may act as an even better incentive! After all, one of the criticisms of Quantitative Easing was that it was going to go on for too long. Critics feared that if the Federal Reserve kept mortgage rates too low for too long, potential buyers would just keep delaying their purchases, because the low rates “would always be there”. Now, it looks like that may not be the case. If anything, Bullard’s comments – and the “fallout” surrounding them – served as a reminder that mortgage rates are not going to stay low forever. In fact, they could be going up sooner than you may think. So, if you have any thoughts about buying a new home, you had better do it sooner rather than later. Otherwise, you may miss the window on a good deal!
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