(TheNicheReport) -- The September announcement of the Federal Reserve with regard to monetary policy and economic stimulus was well-received by market insiders and institutional investors, but what about the average participant of the American housing market? How much do home shoppers and borrowers benefit from the Fed's commitment to keep mortgage interest rates low and purchase mortgage-backed securities.
For borrowers who have refinanced their mortgage in the last twelve months, the Fed's announcement does not open a great incentive to refinance again -unless the principal amount is near the loan limit and borrowers intend to stay in their homes for the remainder of the term. Borrowers who have not been able to qualify for a refinancing or a loan modification due to negative equity should benefit from increased home values as buyers and investors feel they have more time to find good deals and lock into low rates.
The Fed's stimulus comes at a time when unemployment is still high and the economy is recovering at a pace that is slower than expected. Home sales and prices have recorded monthly increases since January 2012, but real estate investors have been behind a good portion of the purchase transactions. Now that home prices have recovered a bit, house hunters are ever more dependent on low mortgage interest rates.
For investors and home shoppers who thought the low rates would only last until the end of 2012, the Fed's stimulus plan gives them more time to find their dream homes or investment properties. There is also a chance that mortgage interest rates could hit a new record low from now until 2015. If the benchmark 30-year fixed descends towards 3.25 percent, 20 and 15-year fixed home loans will be attractive. The same goes for adjustable rate mortgages.
This extended relief favor house hunters and investors, but should the government amend the Home Affordable Modification Program (HAMP) to include even more troubled borrowers, the recovery could be accelerated significantly.
The Right Time to Make a Move
Borrowers, home buyers and investors should not trust that the good times will last through 2015. If median home prices continue to recover, the Fed may slow down on its purchases of mortgage-backed securities and mortgage rates could climb higher. Investors are likely to continue their bidding in regional markets where home prices have rapidly appreciated, but a high number of foreclosures may cool down those markets.
One concern by some analysts and observers is that the Fed's powerful influence could suddenly turn the market and leave some participants out. While that might be the case, the high number of pending foreclosures could have the opposite effect. Another factor to consider is optimism, which could return to the housing market, as it usually does, after the presidential election.