Once the current fiscal stimulus program ends the credit markets will receive only a fraction of the roughly $100 billion a month it was getting from the Fed. The Fed is expected to reinvest proceeds from maturing securities (mainly mortgage-related debt) – a process that will probably inject $12 billion to $16 billion per month back into the credit markets.
The approaching end of “QE2” is already well priced into the mortgage market. The event itself should have little immediate influence on the trend trajectory of mortgage interest rates.
Investor uncertainty is expected to support rates at, or near current levels into mid-July or so.
Should forthcoming data show economic activity stirring back to life to confirm the idea that the second-quarter was nothing more than a “soft-patch” – mortgage interest rates will begin to creep higher. Believe it or not – rising rates will be particularly good news for the housing and mortgage markets since economic growth will almost certainly necessitate a resurgence in job creation.
On the other hand -- if forthcoming economic data suggest the economy is turning over for another dive into the recessionary bottoms -- the Fed will return aggressively with additional fiscal stimulus. To save face the new program will probably not be called “QE3” -- but whatever it is called it will be designed to prop-up the economy until it grows strong enough to support itself. This is a scenario virtually certain to prove supportive of steady to fractionally lower mortgage interest rates. Refinance opportunities will benefit -- but the prospects for growth in the demand for mortgage loans for home purchases will likely dim yet further.
Keep your fingers crossed that further stimulus from the Fed proves unnecessary because overall economic growth has finally achieved a self-sustaining upward trajectory.
THE MARKET IS ALWAYS RIGHT! … YOU AND I ARE SOME OF THE TIME
