Meanwhile, 2009 also brought some of the best home loan rates ever seen in the history of the US, but things have worsened over the last month. This is in part because the Federal Reserve is winding down their Mortgage Backed Security purchasing program…right at a time when there is an increased volume of Mortgage Backed Securities coming to market.
So why are there more coming to market right now? It takes about four months for home loan originations to become securities – and summer originations were light, allowing the decreased Fed purchases during the fall to still help handle the flow of Mortgage Backed Securities coming to market at that time. But loan origination volume increased in late summer and early fall, due to lower home loan rates as well as the perceived expiration of the Home Buyer Tax Credit, which has since been extended. This increased volume of home loans are now securitized and hitting the markets, at a time when the Fed is buying less.
As with any item, when there is lots of supply – in this case, the increased volume of Mortgage Backed Securities – and diminishing demand – i.e. the Fed buying less and less – Economics 101 tells us that the price of that item will subsequently go down. And as Mortgage Backed Security or Mortgage Bond prices go down, home loan rates go up, which is what we saw happen throughout December. While rates were able to end last week at about the same place as they began the week, they did worsen about .50% from the beginning of December to the end.
859-621-1276 / service@lexre.com
Lexington Real Estate Service's Blog 