In order “to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally,” (according to their own FAQ on the subject) the Federal Reserve Bank has been buying up $1.25 trillion in fixed rate Mortgage-Backed Securities otherwise guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The result has been a drop in the mortgage rate for 30 year mortgages. The duration of this program is limited, however, and is set to expire by the end of the first quarter, 2010.
At the end of the Fed’s purchase program next Spring, the market will be ripe for a mortgage rate increase and a reduction in purchasing power for consumers looking for low monthly mortgage payments. Experts are estimating that when the Fed steps out of its current purchasing position, 30 year mortgage rates are likely to rise to 6% despite government incentives for first time home buyers as well as current homeowners.