Follow Patrick Linkedin Facebook
Email Patrick Email
Financial
Oct 15, 2014

What Will Rates Do When Quantitative Easing Ends?

Sponsored Content provided by Patrick Stoy - Mortgage Consultant/Owner, Market Consulting Mortgage

People always ask me what mortgage interest rates are going to do. I guess that makes sense because I am in the mortgage business. While at any given time, I do have my opinions and guesses, there are certainly no guarantees. That’s why when someone asks what rates are going to do, I usually answer, “They’re going to move, and they are not going to stay the same.” I’ve been right 100 percent of the time!

Most of you probably already know what Quantitative Easing (QE) is, but for those of you that don’t know, here’s the really short version …

In the past, prior to the 2008 financial crises, other countries perceived U.S. bonds and securities as a completely reliable investment – you might even say a flight to safety when their own economies were showing signs of weakness. Foreigners were so confident in our paper that they would buy up our issued debt. Our interest rates were (and still are) largely determined by what other countries were willing to pay – you could say that interest is a function of perceived risk associated with U.S. paper. After the crash occurred, other countries lost confidence in our economy and demand for our paper diminished – a lot. That caused interest rates to go up, making it much more expensive to buy a home. After buying homes at such high costs, people were left with far less disposable income, which caused the economy to suffer even more. It was like a vicious cycle that was feeding itself, at least until the U.S. government intervened.

Our government swooped in and began buying mortgage-backed securities. Basically, we were buying our own paper to keep interest rates down and stimulate the economy. This is what was referred to as “Quantitative Easing” or QE. In fact, roughly 70 percent of mortgage-backed securities were purchased by our government.

Over the past 12 months, our government has been gradually reducing the amount of QE through a process called “tapering.” This month QE will be completely eliminated by the government. There is a lot of speculation about the affects of ending QE. Nobody is really sure what will happen, but it will certainly be interesting to see how other countries are going to respond. Will they perceive our market and our dollar as safe again?

The good news is that, at least for now, we are still considered among the strongest economies in the world. Even after QE tapering, rates have remained lower than many professionals anticipated. The main reason rates have stayed low is that the volume of homebuyers (demand) has greatly decreased and remains very low. More people simply aren’t buying homes anymore.

Why is the demand for home buying going down? There are several reasons, but the primary reason is an upward shift in the average age of homebuyers. In the past, large numbers of young adults in their mid and even early 20s were getting married and buying their first homes. Today, there is a trend for young people to wait. They are waiting until later to get married, waiting to have kids and waiting to buy homes. Plus, many of them watched their parents lose money on their homes when property values plummeted. Owning a home is not perceived as an investment with the same level of reliability it once was.

Who knows what the end of QE means for the economy, for interest rates and for the housing market? I don’t know … but if I had to guess, I’d say that borrowing money is going to get much more expensive. So, here’s my advice:

If you’ve been thinking about refinancing, do it now while rates are still low. If you’ve been thinking about buying an investment property or a second home (at least in the near future) do it very soon. The government is done subsidizing rates and I don’t think other countries have the same confidence in our economy as they one did.

One thing is for sure, rates are going to move.

Patrick Stoy has 15 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.

Other Posts from Patrick Stoy

Mcm 14jan insight
Ico insights

INSIGHTS

SPONSORS' CONTENT
Lgoriginalheadshot 311794626

Wellness Programs: Taking It Off Your Plate

Laura Greenhow - Summerfield Custom Wellness
Andyolsen 161723521

Trusts As A Tool In Long-term Care Planning

Andrew Olsen - CSH Law
Dave hoff heashot 300x300

Learning Agility: The Key to Leader Potential

Dave Hoff - EASI Consult

Trending News

Builders: Vibrant Local Housing Market Could Face Struggles

Cece Nunn - Dec 15, 2017

Company Lands $225M In Road Contracts, Including Military Cutoff Extension

Cece Nunn - Dec 14, 2017

Mortgage Firm To Open Wilmington Office

Cece Nunn - Dec 15, 2017

New Hanover County Sues Opioid Manufacturers, Distributors

Christina Haley O'Neal - Dec 15, 2017

The Top Stories Of 2017

Staff Reports - Dec 15, 2017

In The Current Issue

2017 Top Stories: No. 9 - High-level Shake-up Again At CFCC

2017 Year in Review: Cape Fear Community College experienced upheaval once again this year in its top leadership position....


2017 Top Stories: No. 8 - Golf Championship Tees Off Marketing

2017 Year in Review: The eyes of the golfing world turned to Wilmington in May during the Wells Fargo Championship golf tournament held at E...


2017 Top Stories: No. 7 - New Owner Plans To Transform Mall

2017 Year in Review: One of the most high-profile commercial properties in the Cape Fear region changed hands this year, and that means more...

Book On Business

The 2017 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2017 Health Care Heroes
Major Developments
WilmingtonBiz Expo - Key Note Lunch with Keynote Lunch with Chip Mahan - 2016