For potential homebuyers who are still unsure about making a move, the next few months signify a countdown of sorts.

The first countdown is the extension of the federal tax credit for first time buyers (see my previous blog post about this) and the expansion of the credit to include move-up buyers as well, which both expire April 30, 2010. For more information, visit www.federalhousingtaxcredit.com.

The second, and relevant to all buyers, is that the Federal Reserve (the Fed) will soon wind down its program to keep home loan interest rates low.

Here’s how we got to the current low home loan rates: the Fed purchased Mortgage Backed Securities (MBS) in 2009; this helped to keep prices of the MBS high and push home loan rates low.

The good news is that the Fed continues that program through March 31, 2010. But…here is the alert. The Fed’s purchase of the MBS peaked in May 2009 at an average of $25 Billion per week. In November, the average dropped to $14 Billion per week. By the end of that month, the Fed had used over 80% of their allocated funds for the program. There is not much left, especially since the tax credit program has added new loans to the pool.

So why sound the alert? As the Fed’s program winds down, we will likely see higher levels of volatility with shifting rates and since MBS will have less support from the Fed (i.e. they won’t be buying them), other investors will have to buy the securities, and as industry observers believe, rates are likely to rise.

The Wall Street Journal published two pieces today on this matter:

From WSJ / Economy: Bernanke: Low Rates Still Needed

From the WSJ Developments blog: Analyst: Pressure Will Build on Fed To Extend Mortgage Program

So what to do? Beat the spring rush, get qualified and buy while home loan rates are at an all time low.


Posted by:Judy LeMarr