30 yr conventional rate possibly headed to 5.5%

As you may have heard, the Federal Open Market Committee and Federal Reserve Chairman Ben Bernanke announced a change to their current bond buying program today.  Prior to this announcement the FED had been purchasing $85 Billion worth of US Treasuries and Mortgage Backed Securities every month.  The announcement today indicates a reduction or “taper” of that purchasing structure by $10 Billion per month.  This DOES NOT mean that the FED will STOP subsidizing rates anytime soon, but it does signal an intention to wind down the support program over time.  Rates have moved up about .25% over the last couple of weeks in anticipation of such a move so the immediate impact to rates should not be overly negative from here.  That being said, we should expect higher mortgage rates in 2014 as the economy continues to improve.  Fannie Mae and Freddie Mac have also announced increases to their delivery fee to lenders effective in April of 2014.  That will cause a rate increase of around 0.14.  Due to all of these factors, many economists are targeting a 30yr fixed conventional rate of 5.25% – 5.5% by the end of 2014.   NOW is a great time to buy.

Remember that a 1% increase in loan rate reduces purchasing power by 10%.  Add that to an expected 10% increase in home prices in the coming year and you have a very compelling reason NOT to wait.

Today’s Conventional 30 year fixed rate  =   4.5%

                FHA/VA  30 year fixed rate  =  4.125%