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Tapering happened—so now what?

Freddie Mac: Mortgage rates prediction holds steady at 5%

January 2, 2014
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Just before the door could close on 2013, the Federal Open Market Committee shocked the market with its first tapering announcement, going against most analyst predictions.

The Federal Reserve announced in mid-December that it would begin scaling back its mortgage-backed securities purchases to $40 billion per month from $45 billion per month. The committee also will begin reducing its purchases of longer-term Treasury securities.

As HousingWire previously reported in November, Freddie Mac’s Chief Economist and Vice President Frank Nothaft predicted the 30-year, fixed-rate mortgage would end 2014 near 5%.

Despite Nothaft predicting that tapering would not occur until the first half of 2014, Freddie Mac has not significantly changed its stance on the trajectory of rates in 2014. 

The tapering accouncement occurred a bit earlier since the economy is strengthening and getting back on track faster than what we thought, said Len Kiefer, deputy chief economist for Freddie Mac.

Rates are not likely to surge higher since the initial impact is baked in from when rates soared in May 2013, he explained.

Kiefer said they will revisit their predictions for the year’s mortgage rates this month but still estimate to close 2014 off with a 5% interest rate.

The market is still waking up from the holidays, and there are outliers that could affect the economy and the outlook of tapering. 

"When you look month to month, it is very difficult to separate seasonal trends from a long-term trends," Kiefer said. "I am hopeful there is an undercurrent of strengthening and that it is not all seasonal."

Even though the jobs report is good, it is not great, he explained.

Overall, Kiefer said 2014 will be a solid year for housing, with strong sales and construction and continued affordability. 

But launching this new year is going to have to wait. As of Thursday, the Fed was not trading mortgage-backed securities since it remained closed as part of the holiday cycle.

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