Fed Stays the Course on Bond Buying Stimulus, Decision Sends Mortgage Rates Lower
The news sent long term bond yields sharply lower which will in turn send mortgage rates lower in the coming days. 10 year bond yields declined 15 basis points to 2.71 percent on the news but have moved 1 basis point higher this morning. Average 30 year conforming mortgage rates which were at 4.56 percent last week are down to 4.42 percent today.
Higher Mortgage Rates Slowed Refinance Demand
For the past several months, market forces pushed long term bond yields considerably higher, thus send 30 year conforming mortgage rates up more than 1.25 percent. Higher refinance rates slowed refinance demand for the past several months. Until recently, refinance loans made up a majority of all loan demand.
Higher mortgage rates are also starting to cool the housing market. The National Association of Realtors reported pending homes sales declined in July.
Fed Continues Purchases So Mortgage Rates Will Decline
Because the FOMC decided to continue buying $45 billion a month in long term U.S. bonds and $40 billion a month in mortgage-backed securities (MBS), interest rates will start coming down again. In the coming weeks, 10 year bond yields will fall near the 2.50 percent range and 30 year conforming mortgage rates will fall below 4.25 percent.
The FOMC's monthly purchases have kept loan rates low but hasn't had an impact on CD rates, savings rates, and other deposit rates. Those rates were driven to record lows since the federal funds rate was lowered to a range of zero percent to ¼ percent by the Fed. The Fed has kept the fed funds rate at this range since December 2008 and isn't expected to increase that rate anytime soon.
Fed Chairman Ben Bernanke's Press Conference
Right after the meeting the Fed's Chairman, Ben Bernanke, held a press conference on why the Fed has kept its policies in place. Below is the Chairman's entire press conference: