The fiscal cliff and its affect on the interest rates for home buyers.

The Lawhead Team recently came across and article from Realtor.com about the Fiscal Cliff and what it means for the future of interest rates.

This article on Fiscal Cliff, QE3, and the Future of Interest Rates is from Realtor.org:

The ‘Fiscal Cliff,’ QE3, and the Future of Interest Rates

Economists from the Mortgage Bankers Association sounded an optimistic note at a press conference yesterday afternoon during the organization’s Conference & Expo in Chicago, with predictions that unemployment will go down, home purchase loan originations will go up, and mortgage rates will remain low in 2013. All of these point to a continued housing recovery, but they cautioned that major economic challenges loom that could bring about a reversal — particularly in interest rates.

“The most immediate threat is the fiscal cliff,” said Jay Brinkmann, the MBA’s chief economist and senior vice president of research and education, referring to the deep cuts in taxes and government program spending that will take place at the end of this year if some sort of financial compromise isn’t reached by legislators on both sides of the aisle before then. The Congressional Budget Office estimates that U.S. gross domestic product will fall four percentage points in 2013 if an agreement isn’t forthcoming, which would make it a recessionary year.

Mike Fratantoni, vice president of single-family research and policy development for the MBA, predicted there will be some sort of resolution. “It may not be clean, and it may not be timely,” he added. Any major delays would likely lead to a spike in interest rates and, consequently, declines in home sales.

interest ratesOver the long haul, interest rates will likely remain below historical lows because of the flight of global capital to the U.S. caused by the continuing European debt crisis and the Fed’s rollout of another round of quantitative easing (often referred to as QE3). This Fed initiative — which will probably last at least a year and possibly as long as two — will involve the central bank purchasing tens of billions of dollars in mortgage-backed securities each month.

“[QE3] wasn’t surprising,” Fratantoni said. “The aggressiveness, the open-ended nature of it, and extreme focus on the mortgage market was a surprise.”

However, if the Fed determines that they’re crowding liquidity out of the market with QE3, they may shift to purchasing longer-term securities such as Treasuries, Brinkmann added.

Article on Fiscal Cliff, QE3 and the interest rates can be found here: http://realtormag.realtor.org/daily-news/2012/10/24/fiscal-cliff-qe3-and-future-interest-rates