Ahead of news the Federal Reserve plans to help keep interest rates low through mid-2015, the average 30-year fixed-rate mortgage (FRM) came in unchanged from last week, at 3.55 percent, with an average 0.6 point, for the week ending Sept. 19, according to Freddie Mac’s Primary Mortgage Market Survey.
In a bold move to prime the economic pump for a stronger recovery, the Federal Reserve today agreed to purchase an additional $40 billion in mortgage-backed securities.
The planned Fed purchases will nearly double the Fed’s longer-term securities holdings, bringing the total purchases to about $85 billion each month through the end of the year, but the Fed’s statement indicated there could be larger purchases.
Both home buyers and sellers should benefit from the announcement. The move is specifically aimed at pushing mortgage rates lower and keeping them low for years to come in order to give the housing market stronger footing.
Stock markets reacted favorably, closing at the highest levels in five years, as investors applauded the super stimulus designed to keep interest rates low and boost business activity, hiring and consumer confidence.
“In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015,” according to the Fed’s statement.
The Fed had previously promised to keep rates low through 2014.
The stimulus is a shot in the arm for homebuyers who need more time to cash in on low mortgage interest rates. Homeowners will get more time for equity growth, the lack of which has kept many from selling their homes.
Owners, their homes drained of equity during the Great Recession, have remained on the selling sidelines to avoid selling at a loss.
“While QE3 (a reference to the third Fed attempt at “quantitative easing” brand of monetary policy used to stimulate the economy) certainly won’t hurt the housing market, its short term effect will likely be limited,” says Richard Green, director of the University of Southern California (UCLS) Lusk Center for Real Estate.
“The constraint that is keeping people out of the housing market is absence of equity. The drop in house prices means that many borrowers are underwater on their houses, and high unemployment has prevented potential first-time buyers from accumulating down payments. But lower interest rates will allow households to potentially refinance into shorter term mortgages, which will allow them to accumulate equity in their houses faster,” Green added.
Last year at this time, the average 30-year FRM interest rate averaged 4.09 percent.
The average rate on the 15-year FRM was 2.85 percent, with an average 0.6 point, down a notch from last week when it averaged 2.86 percent. A year ago at this time, the 15-year FRM was 3.30 percent.
The 5-year Treasury-indexed hybrid’s average adjustable rate (ARM) was 2.72 percent this week, with an average 0.6 point. Last week it averaged 2.75 percent. The 5-year ARM averaged 2.99 percent a year ago.
Finally, for the week ending Sept. 13, Freddie Mac reported the 1-year Treasury-indexed ARM averaged 2.61 percent, with an average 0.4 point, unchanged from last week, and down from 2.81 percent a year ago.
“The quantitative easing may help improve mortgage rates slightly more. Next week is critical since most of the impact will be seen over next few days. Since the rates are already at some of the lowest level in the year (and in the history), we don’t expect any substantial improvements, but a minor improvement is not ruled out,” said Shashank Shekhar, CEO of Arcus Lending.
