As reported in the Financial Times, the Federal Reserve plans to end its special program of buying mortgage securities in March. This program was implemented to keep mortgage costs – that is, the home buyer’s interest rate- artificially low to create a boost to real estate sales. The expectation is that the end of the program will result in an increase in rates, but how large a jump is a matter of debate.
As John Maudlin spells out, the purchase of these securities resulted in lower interest rates, but it also seems to have indirectly financed the US government deficit. The funds and banks that sold the mortgage securities turned around and bought US government debt or put the cash right back at the Fed. With a booming deficit, someone has to buy US debt, but who will, unless rates increase significantly, with a similar drop in the value of the dollar? If you need a real estate loan, now is the time. After the first quarter of 2010, rates are going up, and qualifying for that loan may be out of reach.