With the Federal Reserve planning to buy $600 billion of debt owned by Freddie Mac and Fannie Mae, mortgage rates have plunged to the lowest in the past 7 years. Average rates on 30 year fixed mortgages with no fees and closing costs have gone down to around 5.25%.

Earlier when rates have been going high, home resales have hung up. However, the Fed’s move to purchase Freddie Mac and Fannie Mae loans is expected to bring some positive changes in the housing market.

The Fed also intends to set up a $200 billion program in order to provide financial support to consumer and small business loans. However, it is expected that strict lending rules and growing job losses in a weakening economy will make it tough for markets to come across a revival, even though rates may go down further.

It’s not a matter of what rates one can afford. Instead, it’s an issue about the supply of homes which is quite high. Until and unless the supply and demand get normal, the market won’t see stability and revival.

Let’s just hope that the Fed will be able to deal with the market crisis by clearing the market of subprime mortgage securities, the primary reason behind the mortgage mess.

Tags: fed purchase debt, mortgage rates

This entry was posted on Friday, November 28th, 2008 at 5:51 am and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.