At the conclusion of a two-day policy meeting Tuesday, Dec. 15, the Federal Reserve has signaled that it’s taking aggressive steps towards the tapering of bond purchases to fight off inflation.
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USA Today reported that the central bank now aims to end bond purchases by March instead of June. Now that long-term interest rates are expected to rise earlier than expected, how will this affect buying a house?
The Fed started purchasing bonds during the pandemic in an effort to keep borrowing costs low and to prevent any market disruptions. Interest rates have been near zero throughout the pandemic, pushing up application volume for mortgage purchases and refinances.
However, as bond purchases are tapered, long-term fixed mortgage rates will start to go up as they are influenced by the economy and inflation, CNBC reported. Once rates rise, homeowners with adjustable-rate mortgages could also be impacted.
Video: Fed could issue fewer rate hikes if inflation settles, says Nuveen’s Malik (CNBC)
Fed could issue fewer rate hikes if inflation settles, says Nuveen’s Malik
Jacob Channel, senior economic analyst at LendingTree, told CNBC that there is an upside.
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“Because higher rates are likely to decrease demand for new housing, would-be homebuyers might find themselves with a greater selection of homes to choose from in 2022,” he said.
“Even at 4%, rates would still be relatively low from a historical perspective,” he added.
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