It’s “certainly possible,” CoreLogic chief economist says
Deep inside the fortresslike headquarters of the Federal Reserve Bank of New York in lower Manhattan, a group of market specialists on Monday re-started the bond-buying program that during the financial crisis was known as quantitative easing, or QE.
In a surprise announcement on Sunday, the Fed’s rate-setting Federal Open Market Committee said it would buy $500 billion in Treasury bills and $200 billion of agency-backed mortgage securities. In addition, it said it would reinvest run-off from its existing portfolio of mortgage bonds.
The Fed launched three rounds of a similar bond-buying more than a decade ago aimed at saving the housing market and stimulating economic growth during the financial crisis. The first phase, started in December 2008, helped to drive mortgage rates below 5% for the first time ever.
The Fed also said on Sunday it was slashing 1% from its benchmark rate, putting it near zero for the first time since the financial crisis, a move that will make business borrowing cheaper and help homeowners with equity loans tied to the prime rate, which moves in tandem with the Fed rate.
But for the mortgage market, the QE program and the pledge to reinvest MBS runoff was the big news because it will increase competition for agency bonds. When demand goes up, yields go down, and that usually translates into lower mortgage rates.
“The Fed is creating liquidity and creating demand for mortgage-backed securities, which drives down rates,” said Mark Goldman, a loan officer with C2 Financial in San Diego. “It will take a few weeks for things to settle down, but once that happens we could see rates return to record lows of near 3%, and there’s a chance we could see a sub-3% rate for a 30-year fixed conforming loan.”
Frank Nothaft, CoreLogic’s chief economist, said the new lows in rates could come just as the housing market’s spring selling season hits its stride.
“It may not be tomorrow or next week, but I think longer term as we look to the spring, yes, I think we could see rates moving down to new lows and possibly below 3%,” Nothaft said. “It’s certainly possible.”
