Since March 2020 when the economy was turned upside down, the Federal Reserve has been purchasing Mortgage-Backed Securities to hold borrowing costs low and to promote lending. The U.S. has now come out of the health crisis and the shutdowns that caused production to halt for goods and products which sent the U.S. supply chain into a tailspin.
In addition, too many dollars chasing fewer goods and services has a downside.
So, what is the outcome of what took place in the past year? High inflation.
Now that the Federal Reserve has laid out its plans to battle high inflation through raising interest rates and cutting back purchasing Mortgage-Backed Securities. Consumers seeking to purchase a home or refinance their current mortgage may not want to waste any time as the new year unfolds.
Why? Once the Federal Reserve stops buying bonds and starts hiking rates, they have a desire to trim or shrink their balance sheet. In doing so, they only want to hold Treasury securities on its books. This means they will no longer reinvest in mortgage-backed securities (MBS) and could become a seller of such assets in the future. If the Fed were to do this, we should expect higher interest rates and home borrowing costs.
However, Fed Chair Powell has stated that the direction of where home borrowing costs or interest rates will be determined by the incoming economic data.
Bottom line: If you're considering purchasing a home or refinancing a current mortgage, don't delay. Rates are still historically low.
Source: Mortgage Market Guide