Market observers believe the Fed’s continued monthly commitmentto acquiring $40 billion in agency mortgage-backed securities has served its purpose, with housing data showing clear signs of improvement.
Now that existing home sales and new home sales are rising alongside falling foreclosure inventories, Fed watchers are anxiously awaiting for the central bank to take its foot off the gas pedal.
Jay Brinkmann, chief economist and senior vice president for the Mortgage Bankers Association, told MBA Secondary Conference attendees the Fed may start to taper its assets purchase program this fall, with the program ending for good in the first quarter of 2014.
Many implications are associated with the central bank’s asset purchases including the impact of continued low rates on employment.
Additionally, “It forces investors to take on more risk, perhaps inflating equities and commodities,” Fratantoni said.
He added, “The Fed is essentially choosing preferred asset classes for us.”
The simple fact of the matter is that until the unemployment rate drops to 6.5% and the inflation rate hovers near or below the 2% mark, the Fed will stay committed to QE.
Nonetheless, the economy is growing, but slowly.
“Growth will be lower in the second quarter with a slight uptick, but it may be some of the highest growth this year,” Brinkmann explained.
Construction spending will be one of the key drivers for the market this year and in 2014, given the significant growth in new home construction, specifically multifamily.
As a result, the MBA expects new home sales to hit 430,000 by the end of the year and 480,000 by the tail end of 2014.
Additionally, existing home sales are expected to reach 4.9 million units this year and 5.2 million in 2014.
The 30-year, fixed-rated mortgages are supposed to hit 2.8% by the end of 2013 and significantly increase to 4.5% in 2014.
Meanwhile, Brinkmann identified near-term concerns in the industry, including the development of a real estate bubble.
While the chief economist admitted it’s extremely difficult to tell when a bubble has formed until it bursts, he does not believe a housing bubble is forming in today’s market.
