The Federal Reserve’s quantitative easing (QE) program involves the monthly purchases of $85 billion worth of Treasury and mortgage bonds. These purchases have helped keep interest rates historically low.
But in the last few months, Fed officials have started talking about tapering QE some time in the near future.
The bond markets have been going nuts, selling off in anticipation of the taper. And this has been causing interest rates to surge all over the world.
One notable rate that’s been going crazy are mortgage interest rates.
“The average 30-year fixed-rate mortgage rose from 3.93 per cent last week to 4.46 per cent this week; the highest it has been since the week of July 28, 2011,” said the analysts at Freddie Mac. “This represents the largest weekly increase for the 30-year fixed since the week ended April 17, 1987.”
Fortunately, the markets have been able to absorb them.
“Higher mortgage rates may dampen some housing market activity but the effect will be muted by the high level of buyer affordability, and home sales should remain strong,” said Freddie Mac’s Frank Nothaft. “For instance, existing home sales in May rose to its strongest pace since November 2009 and new home sales were the most seen since July 2008. In addition, the 12-month growth in the S&P/Case-Shiller® 20-city home price index for April of 12.1 per cent was the largest since April 2006.”
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