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How Fed Decision Not To Taper Bond Buying Affects Housing Market

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How Fed Decision Not to Taper Affects Housing


Related blog: Fed Decides Not to Taper Bond Buying Program

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Ok so the Feds decided not to start tapering off their bond buying program. You hear something like that you probably wonder ok what does that mean for me? Well it’s good news at least for the housing market our on the market duo of ML Realty John McGeough and Anthony Lamacchia here to help us break this down, we were waiting for this announcement

This one was highly anticipated. It was the first meeting in a couple years when him and I in front of a TV watching.

Because it has that enough of a direct effect o interest rates when people are trying to get mortgages

Yes it absolutely affects the housing market a lot.

Ok so the fact that they are going to hold the fort they’re not going to start shaving back what does that mean for the average Joe going out applying for a mortgage

Well essentially it should give them confidence. Because in a nutshell what it means is rates are going to continue to stay where they are and we’re hoping that they’ll push rates a little lowers and for buyers right now who have been spoiled a little bit in the earlier part of the year, we’re hoping that it’s going to get them motivated to get out there, look at homes and make an offer because this stimulus or buy back program is going to end at some point and there was huge speculation that it may end sooner rather than later but we’re happy to hear that it’s going to probably for the foreseeable future

The bond buying program aims to spend $85 billion a month– how does that pump money into the system and then trickles down into the housing market

I’ll try to explain that.

You take this one!

Basically the Federal Reserve is spending $85 billion a month on two things, mortgage backed securities, which affects the long term interest rate, and the treasuries which affects short term interest rates. If you look at history, when rates are lower the economy typically picks up, things get going, then when the economy gets too hot, the Fed takes money away doesn’t buy bonds, and what happens, rates go up, when rates go up the economy slows down so the Fed was thinking and talking all summer about kind of decreasing the program. Instead of $85 billion a month, maybe bring it down to $75 billion or bring it down to $70 billion back off a little bit. Just on that anticipation rates went from 3.5% in May to 4.5% to now. Actually they’ve been over 4.5%.

I was just going to ask that in the summer time we saw the rates start to creep back up. People started to get worried and it actually ended up being good for sellers? Because even though they were up people were so scared they were going to go up even higher I feel like they kept…

I think in the beginning there was some of that buyers said oh I better jump in because rates are going up  it definitely I’d say within a month started to slow the market down we saw a slowdown in the summer.

There’s no positive impact on the housing market if rates go up. Because even that micro bubble we saw in the spring and then even as Anthony highlighted even the speculation or the hint that the government was going to pull back a little bit rates shot way up and that wasn’t a good thing for sellers because borrowers are then getting less than what they can borrow and you’re going to have to spend less

It creates pause. I always use this example, if someone was preapproved in May 1 to spend up to $400,000, but if they got pre approved again June 15, they probably would have been approved for $360,000.

So then by waiting to be approved?

That’s right because rates went up in that period of time so the availability of money it decreases it which decreases a buyers buying power. So it’s impossible not to have some negative impact on the market. Not that we’re saying that eventually when the rates go up thing are going to fall apart but they have to go up when the market is clearly ready for it and be able to withstand it. And you can see the Federal Reserve Chairman clearly didn’t have that confidence

Do you guys see that actually happening, do you get a sense in your experience ok it’s going to be a year, 10 years. Obviously they thought maybe it could be now and it’s not

Anthony and I have always thought it’s a little more long term. Massachusetts parts of New Hampshire are recovering faster than other parts of the country but we’re still seeing 2 or 3 years before we think you can just completely have the government step out and let the market operate independently. We still have a while to go I think one of the hightlights or positives or even rates going up just a on this speculation is that the government has realized that housing is the nucleus of the economy jobs contractors advertisers everything is around that so we have to even if it’s a crutch a little bit we have to keep that healthy so we hope they stay involved for the foreseeable future.

Well at least we have it status quo for now. Thanks guys lots of interesting stuff to think about whether you’re selling or buying.


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