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The Fed and you

December 18, 2013

One of the common themes that is stressed via A Fresh Pair of Eyes is the connection between headline news and your own personal financial life. It can be very difficult to try and connect the stories that are on the radio, CNBC, and the Wall Street Journal, with what is going on in your personal life. Today, however, provided a perfect example of how these headline events can have a powerful impact on things that matter to you.

Today’s announcement of the Fed tapering by $10 billion a month is driving this as well. The Federal Reserve is now purchasing $75 billion of assets per month, as opposed to $85 billion a month, and the impact on interest rates will be interesting to watch.

Mortgages are one of the most obvious ways that the policies of the Federal Reserve can impact your personal financial plan. Everyone knows that mortgages come with interest rates, and that these interest rates can have a huge impact on the affordability of the home/condo/townhouse you are trying to purchase and afford. Basically, the Fed, through its policies, has been keeping interest rates artificially low since the financial crisis, but with the looming possibility of continuing Fed tapering, interest rates might very well be on the rise. Higher interest rates make property purchases more expensive, all things being equal, and this has been reflected in the declining mortgage applications.

Mortgage applications declined 5.5% week over week, and have hit their lowest level in 12 years. Applications for both refinances and initial purchases have dropped 4% and 6% respectively. It will be very interesting to see how this first leg of “tapering” will impact interest rates, and the housing market overall, going forward.

Happy Reading!


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