The last 12 months have not only been interesting but they have been expensive for the American Taxpayer. Over the last 12 months the Fed has spent over one trillion dollars (yes I said trillion) on Mortgage Backed Securities (MBS) and will continue to do so until the end of the first quarter 2010. By creating demand for these securities they have effectively driven their yields down and with that comes VERY low interest rates. Thats the good news …now for the not so good news.
This artificial demand has accounted for 80% of the purchases as of late on MBS, so what happens when the Fed stops and demand falls 80% or even 50%. Think beach ball being held underwater and as soon as the pressure is released then “wham!” rates will shoot up. How far they go up is the big question – already our rates are rising in anticipation of this and we have seen rates move from the mid 4’s to the low five’s in just the past week. My personal projection? We will be seeing rates in the 6’s before summer ends.
So if you are on the fence and are thinking about buying but want those prices to drop a little, well think again! An increase in your interest rate by a point will far out pace your savings on the price when rates move up. So- shop – lock and get it done now.
John McClellan – Supreme Lending