Fed Prepares to Pull Out Housing Support

Back in January 2009, the Federal Reserve stepped in to steady the declining housing markets by investing in mortgage bonds. The move helped stabilize the housing segment, which was spiraling down under the onslaught of the recessive economy and bolstered the hopes of many home owners and developers alike.

As the US economy shows definite signs that it has turned the corner, the Fed has now decided that the time has come for this support to be withdrawn so that the market can find its own balance among the other segments of the economy.

The investment had succeeded in its aim of cutting back housing costs during the recession to help home owners fulfill repayment commitments and also encourage new home buying by making mortgage loans attractively priced. In December, a 30 year mortgage recorded an all time low of 4.71% interest rate. Following the improvement in the housing segment since the beginning of the current year, the government has been putting in motion its final withdrawal from the market.

As purchases by the government have reduced since January, investors have stepped in, to pick up the slack following a return of optimism and growing confidence. Experts opine that when the Fed pulls out completely these investors will fill in the gaps completely leaving a market, which will once more be governed by normal economic forces.

Big investors like banks and pension funds are likely to invest in mortgage bonds to diversify their portfolio and still stay within the safety net as housing activity picks up. The recovery has made funds more easily and readily available to these investors. This will set the stage for a balance which will pave the way for the return of normalcy in the housing after a period of immense volatility and uncertainty.

Analysts believe that the end of the $1.25 trillion bailout will not result in a spike in interest rates for homebuyers looking for a loan owing to this reason. The prediction is that there may be a miniscule spurt in fixed mortgage rates in the next quarter, which will not translate into any significant additional burden on borrowers.

Analysts paint a bigger picture showing that a 3% growth in the economy is likely in the current year. The country’s GDP showed a heartening 6 year best tally with 5.6% annual growth. As inflation continues to keep well within predictions, the Fed is still expected to continue with its current low rates in the near future.

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