The Real Deal New York

Fed’s slower bond buying to impact refis, home purchases

January 13, 2014 05:40PM

Federal Reserve Chairman Janet Yellen

Federal Reserve Chair Janet Yellen

As the Federal Reserve begins backing away from a four-year bond buying policy that has kept interest rates at historic lows, the rate of that change – and how well the Fed communicates its plans — will determine the impact on lenders and the housing market as a whole, experts said.

If the tapering is too swift, fast-rising interest rates could cause refinancing to stall, according to Mike Fratantoni, chief economist for the Mortgage Bankers Association. The lending market, in that case, would shift towards home purchases and some home equity loans, Fratantoni told Housing Wire.

“Some lenders have been stronger at refis and they will have to adjust,” Fratantoni said. “Others have managed to stay focused on purchases even through the refi wave and are well-positioned if the market shifts.”

Regardless of the speed, some experts are concerned that investors and traders aiming to anticipate the Fed’s next move will flood the market with sellers, ultimately leaving them unable to land bids, Guy Haselmann of Scotiabank said in a recent report, cited by HousingWire.

“The apt analogy is a playground see-saw where investors (and Fed) have a seat firmly on the ground and risk assets dangling in the air,” Haselmann wrote. “At some point, a few heavy investors will decide to jump off the seat that they have been sharing with the Fed, causing the high seat risk assets to come crashing down from its high perch.”

Just before the holidays, U.S. home mortgage applications fell for the second consecutive week, to a 13-year low. However, that drop followed a jump in mortgage rates after an announcement from the Federal Reserve that it would taper its bond market purchases starting in January. [HousingWire]Julie Strickland

  • Conscience_of_a_conservative

    This is a silly article. We’ve had a low interest rate environment for years. There’s nobody left with decent credit to refinance, unless you count people who took a four year vacation to the Galapagos Islands. There’s something called the burn-out effect in mortgages and that certainly applies here. Refis are already way down and it has nothing to do with the Fed undoing QE but from the Fed no longer forcing interest rates down more.

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