Illinois Mortgage Rates and the End of Quantitative Easing
On November 25th in 2008, the Federal Reserve announced that it would purchase up to $600 billion in agency mortgage-backed securities and agency debt. This program known as Quantitative Easing, or QE, has driven down mortgage interest rates to historically low levels.
On November 20, 2008, according to Freddie Mac’s Primary Mortgage Market Survey, the average rate for a 30 year fixed was 6.04%. One month after the announcement of QE, that rate dropped to 5.19% and eventually drifted down to just above 3.3% for a 30 year fixed mortgage.
Why is this important? In the 42 year history of the Freddie Mac Primary Mortgage Market Survey, the interest rate for a 30 year fixed rate mortgage had never fallen below 5% before the Fed’s announcement of QE. And, 30 year fixed rates only dipped below 6% for a very short period of time throughout the history of the survey, mainly in 2003, 2004 and 2005.
As you may have heard, there has been discussion of tapering and the eventual end of QE. So where do you think 30 year fixed rates will go when the Fed officially announces the end of Quantitative Easing? We think rates will go to where they have historically been – at 6.0% or higher.
Ask us to help your borrowers do the math. You can borrow $400,000 at 4.5% for the same payment as $340,000 at 6%. That is 17% more borrowing power. If home prices go up another 5% or 10%, many potential buyers will simply be priced out of the market.