QE4-ever?

by

blog-author-clayjeffreys3

Quantitative Easing (or QE) is the government’s unconventional plan to help stabilize the financial markets and the economy. This program began in late 2008 and is ongoing today. It helped push interest rates to historic lows, stabilize the financial markets, and also helped to fuel the stock market. So what exactly is QE?

Basically, it is the government buying. As the government purchased bonds, it helped stabilize and increase the value of those bonds. By doing so, it caused interest rates drop (to help housing market) and allowed the financial markets to “take a breath” instead of panicking about the current state of events.

The first round was announced in late November 2008. On the announcement, interest rates dropped half of a point. Interest rates continued to improve from there. Prior to the recession, the government held roughly $700 million of Treasury notes. Through QE1, QE2, and QE3, their balance sheet got as high as $2.1 Trillion (with a “T”). The goal was to buy bonds to stabilize everything, then slowly sell them off to get back to pre-recession levels. It hasn’t worked out that way.

QE1 gave way to QE2… then we had QE3. Then the goal was to stop QE3 by the end of 2013 or early 2014. The plan to begin taper off bond buying was announced in mid June. Note the use of the word “taper” and not “stop immediately.” How did the market react?

Remember the sudden interest rate spike in June? Well, when this “taper” plan was announced, bond prices dropped drastically. When bond prices drop, interest rates go up. Stocks dropped almost 700 points during the same time period… that is how the market reacted. By the Federal Reserve meeting in mid September, the tapering of bond buying was put on hold with no new end date announced. Stocks and bonds both improved (which is why rates got better in September).

What now? In theory, bond buying can’t go on forever. The market will eventually have to stand on its own. As you can infer from this post, the market can react emotionally at times. If you are thinking of buying a home OR wanting to refinance and think you missed out, a new window has been opened as interest rates improved with the continuation of QE3 (or should it be 4 now?!?).

How long will this window last? With the way bond buying has gone since 2008 (almost 5 years now), maybe forever… or maybe as short as the next Federal Reserve meeting in late October. Those meetings impact the markets. We have less than 30 days until the next meeting. Don’t miss this opportunity and avoid market uncertainty by starting the loan process now. I can help you start the loan process today if the home is located in GA.

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One Response to “QE4-ever?”

  1. QE Tapering begins in 2014 | The Mortgage Blog Says:

    […] that the “tapering” process will begin in January 2014. Apparently there will not be a QE4-ever after […]

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