The Federal Reserve's announcement that it will begin to taper its $85-billion-a-month bond-buying program in January could translate into a lot of money lost or gained for homebuyers and sellers this year.
The central bank has been stimulating the economy and keeping interest rates low partly by purchasing billions of dollars in real estate debt and treasuries in the years following the 2008 housing collapse. But as the economy continues to mend -- particularly the housing market -- the Fed announced it will start to pull back the punch bowl, and that can have a direct impact on interest rates and how much we pay for a mortgage loan.
"All the changes the government makes is going to impact borrowers in some way," says Brian Simon, COO with New Penn Financial. "Credit costs are going up, even if the impact may be imperceptible to the consumer right away."
While no one is predicting interest rates to skyrocket, experts say they could reach 5 percent by year end. They also predict gyrations in rates as more information about the Fed's tapering plans unravel. After all, when Federal Reserve Chairman Ben Bernanke first made reference to tapering plans in summer 2013 it sent rates jumping.
According to the Wall Street Journal, if the Fed sticks to Bernanke's tapering guidelines, the central bank's program will likely be complete by the end of this year.
"The Fed is still going to hold on to mortgage-backed securities which should help keep interest rates low," says Steve Boyd, senior loan officer at Americana Mortgage Group. "The real estate market is coming back, unemployment is getting lower and the economy is getting better. Interest rates going up incrementally is not going to be a big determent to housing."
Although there is a lot of attention on what the Fed may or may not do in 2014, Bob Walters, chief economist at Quicken Loans, says consumers should be more aware of what's happening with Fannie Mae and Freddie Mac, the two government-backed mortgage firms and the impact the moves will have on the cost of a mortgage.
According to Walters, Fannie and Freddie's charges account for roughly 0.5 percent to 0.6 percent of a homeowner's interest rate today. Walters says it wouldn't be surprising if that were to increase by 0.1 to 0.2 percent sometime in 2014. "That would mean if today you are paying an interest rate of 4.75, if the guarantee fee were to increase by 0.1 percent or so, you'd be paying 4.875 after such an increase," he says.
At the end of the day, home buyers and sellers don't have to monitor every fluctuation in rates, but Simon says they should be cognizant of the fact that the rates will likely increase a bit in 2014.
"It's likely they will be higher than they are today, but I don't think we will see 6 percent or 7 percent rates all of a sudden. The rates are significantly higher than they were six months ago and they are still low."