Mortgage rates drop after Fed announcement

1/30/2014 12:08:34 PM

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After its two-day meeting ending on Jan. 29, Federal Reserve officials announced they would continue the tapering of quantitative easing, the stimulus spending that has been in place since 2012.

Mortgage rates have remained near historic lows over the past few years as a result of the Fed's fiscal policy. Many economists expected interest rates to rise above 5 percent once stimulus spending was reduced. However, mortgage rates have fallen to the lowest levels in a few months.

According to Mortgage News Daily, mortgage rates dropped to an average of 4.375 percent for a 30-year fixed-rate mortgage on Jan. 29, immediately following the Fed's announcement. During the previous few days, rates averaged around 4.5 percent. That figure remains the average for some lenders.

The impact of reducing stimulus spending may have already had its effect on the mortgage market. The fact that mortgage rates have not risen above 4.5 percent since Fed officials announced tapering plans indicates that rates might remain where they are. CNBC reported that mortgage rates have already risen substantially and may have already absorbed the impact of the anticipated reduced pace of spending from the central bank.

This could be a positive sign for homebuyers who hope to make a new home purchase in 2014. Another reason mortgage rates may not be moving upward could be the fact that applications are down compared to a year ago, when rates were ultra low. While many housing markets remain affordable for American homebuyers, rates are up nearly 1 percent from where they were a year ago. Additionally, long-term interest rates might not be affected until the Fed completely abolishes quantitative easing.

Contact the Federal Savings Bank, a veteran owned bank, to find out more about affordable mortgage options.