Most of us have heard the news from December 16th that the Fed is targeting the Fed Funds rate in the range of “0% – .25%.” What this means is they dropped their rate .75% to .25% but left the flexibility to cut another .25% and take the rate to 0%.
That’s all well and good but the real news for us lied in the commentary: €œthe Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets €œ. The buying of these securities is what directly impacts mortgage rates-investors buy securities, the prices go up and yields (and mortgage rates) go down.
This commitment is huge as it will also prompt other investors to jump in and we should see rates dipping into the mid 4% range! This is historic as we are now at levels below the previous all-time lows seen back in June of 2003.
