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

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