To Taper or Not to Taper?

Much has been made of the Fed’s recent decision to not cut back on their bond buying program (Quantitative Easing) and for Should Fed keep QE2?good reason, as it has long term ramifications for the U.S. economy.

What it means for the Salisbury MD area homebuyer

The Fed decision was a surprise to many markets and they reacted accordingly. The Dow Jones Index was up significantly after the announcement. Mortgage rates also dropped significantly, since more money will be available for bond purchases than anticipated.

The takeaway?

  • Expect more rate volatility in the markets over the coming weeks.
  • If close to a contract of just under contract, lock in while the getting’s good.
  • If already locked, contact your lender and see if they have a “floatdown” option for your loan product.

What it means for Salisbury MD area home sellers

  • Cheaper money means more active potential buyers for your home, simply because it’s more affordable to them.
  • The possibility of multiple offers increases, netting you more at the closing table.
  • The recent movement in mortgage rates may nudge some would be buyers “off the fence”, encouraging them to take advantage of lower rates while they still can.

The sword has two edges

The Fed’s decision essentially has them admitting they don’t believe the economy can recover on its own without additional stimulus, especially the housing market. The boogeyman here is the health of the housing market should be tied to labor and jobs, not the artificial shots in the arm of money creation.

Nearly every month a disappointing jobs report is released, yet the unemployement rate remains unchanged or even drops. How can this be? The Labor Department has simply stopped counting those who have given up looking for work among the unemployed.

The reality is we now have the lowest labor participation rate in 35 years. Combine that with consistent downward revisions of previous jobs reports and it paints an ugly picture. Don’t be surprised if the Fed actually increases it’s bond purchasing program next year and beyond, driving down mortgage rates even further. Of course this goes against conventional wisdom, is only one man’s opinion and I’ve been wrong plenty of times in the past.

My job is to give you the facts, not sugarcoat things or get political. Feel free to comment here or contact me to discuss your particular situation.

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