The Federal Reserve's $600 billion worth of quantitative easing is unlikely to lead to another significant drop in mortgage rates, but loan rates could continue to fall at least slightly.
Amy Crews Cutts, deputy chief economist at Freddie Mac, said, "It's not going to have a direct effect," because most likely the Fed will not "be buying mortgage-backed securities. They're only buying Treasuries."
It's possible mortgage rates could dip if investors who normally buy Treasuries are chased out of that market by the Fed's purchases and opt to buy MBS instead. But even if that does happen, it won't move mortgage rates much, Crews Cutts said.
Federal officials could theoretically buy MBS again, but have so far only mentioned Treasuries and are unlikely to change that strategy without signaling such a move.
"The Fed is not worried about mortgage liquidity right now. They're worried about the overall economy," Crews Cutts said.
David A. Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., had a similar take.
"One in seven mortgage debtors are either in arrears or in the foreclosure process," Rosenberg said. "And with an estimated 25% of homeowners 'upside down' in their mortgage, there is at least some nontrivial probability that, as was the case with QE1, there will be no visible impact on the willingness to borrow … which is what we would need to see to declare this radical policy experiment a success."
For the week that ended Nov. 4, the average interest rate on a 30-year fixed-rate mortgage was 4.24%, up slightly from 4.23% the previous week. A year ago the 30-year fixed-rate mortgage averaged 4.98%, according to figures compiled by Freddie Mac. This is the third consecutive week that the 30-year rate has risen.
