We have talked about this for months. The Federal Reserve Board has finally reached the date in which they are no longer purchasing 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 also kept overall rates down while the government took many 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. Is this a non-event at this point?
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. Here is a quote from a recent article from the NY Times: "No one expects the Fed to unload its holdings anytime soon, which would be reckless given the housing market’s fragility and the country’s high unemployment. But since the Fed now owns about 25 percent of the outstanding stock of bonds, any talk about actually selling should be a cause for greater concern than the Fed simply ending further purchases." 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.