According to James Bullard, president of the St. Louis Federal Reserve Bank, the Federal Reserve may decide to further slow down the pace of its exit from the asset purchase program, and may now consider extending it into 2015. Bullard told reporters that recent soft economic data is making him reconsider the previous plan to end the asset-purchase program during 2014. The decision is still up for debate according to many economists initial analysis.
Economists were about split on whether they think the Federal Reserve will continue to pare its bond purchases at the current rate throughout 2014. At each of the last two meetings, the Fed lowered its purchases by a pace of $10 billion per meeting, lowering its current pace to $65 billion per month. There are seven meetings left in 2014, and if this current pace continues it would mean the asset purchase program could end by the end of 2014, and would not continue into 2015. These Fed bond purchases have been intended to drive interest rates down for loans, and to stimulate economic growth and spending.
The cut back in asset purchasing during the last couple meetings has already caused mortgage rates to steadily rise over the last year. The reduction in asset purchasing by the Fed, also known as quantitative easing, signifies that the economy is doing better and getting stronger. According to many economists, the Fed is making the right move with their decision to slow asset purchasing. In many areas across the country we have seen increasing demand for housing as well as an increase in housing prices. Both the economy and job market seem to be taking an upward turn as well.
Bullard says there is not a calendar date set in stone yet for ending asset purchasing, and the Fed will remain flexible based on economic factors and outlook. During the last Fed policy meeting, the minutes show that only a few Federal Reserve officials were concerned about the soft data to propose the possibility of pausing the steady pace of $10 billion per meeting. According to Bullard, he says at the January meeting that he did not advocate ending the asset purchase plan during 2014. Bullard is not a voting member of the Fed’s policy committee during 2014.
So what does this mean for new home buyers entering the market? New home buyers looking to enter the market in 2014 can still expect to see ‘slowly but steadily increasing’ interest rates as well as increased housing prices. The strengthening economy and job market will drive up housing prices especially in popular metro areas. This coupled with the predicted steady rise in interest rates, makes it a time sensitive situation for homebuyers looking to enter the market. For homebuyers in 2014, the best financial decision would be to lock in a mortgage sooner rather than later. We have already seen large increases from a year ago at this time, and experts agree that we will not see prices this low anytime in the distant future.
