Everett Mortgage Expect higher Interest Rates Soon
As of March 1st expect FHA mortgage rates, VA mortgage rates, and all other long term interest rates to rise. Expect prices for homes for sale in Everett to fall. I am not Chicken Little and saying the sky is falling but there is going to be some very dark clouds coming soon. Here is why. The Federal Reserve Bank (the Fed) will no longer be buying Mortgage Backed Securities (MBS) on the open market. I know you are saying how is that going to effect FHA mortgage rates?
Well a lender makes a 100 or a 1000 home loans and then packages them into a MBS. They sell that MBS on the open market. The price the open market is willing to pay is what determines what interest rate will be charged on the mortgage. If the interest rate on a particular VA mortgage or an FHA mortgage isn’t high enough the MBS will not get sold and that’s not good. Banks only make their outrageous profits if they churn your money several times. Remember that the deposits they use to make an FHA mortgage or a VA mortgage is your money. Simply lending it out once isn’t enough they have to lender it out several times over but that’s another story.
The Fed has been buying MBS with below market interest rates and in doing so they have kept the interest rate below market. You the taxpayer have been subsiding the mortgage market. I’ll bet you didn’t know that did you? When the Fed stops buying the open market must buy the MBS or the entire housing industry will come to a screeching halt. To sell the MBS banks will inevitably have to charge more interest.
Now why will prices fall on homes for sale in Everett? The price a home can sell for has a great deal to do with mortgage money liquidity. If interest rates are up that means a buyer with a limited budget can not buy as much home as before. If I have a $1000 a month maximum payment I can buy more home at 5% than I can at 6.5%.
So when the fed stops buying MBS on March 1, 2010 expect prices to fall on homes for sale in Everett. Expect interest rates to increase on all FHA mortgages, VA mortgages and all long term projects.
Jim Johnson and comments are always welcome.