Economists' Outlook

Housing stats and analysis from NAR's research experts.

Daily Economic Update: FOMC's "Operation Twist"

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the FOMC's Wednesday announcement of "Operation Twist".

  • No data releases are out today, but this gives us a chance to look at the market reaction to the FOMC’s announcement on Wednesday afternoon. Dubbed “Operation Twist” by the market, the FOMC is attempting to reduce longer term rates by selling short term securities (3 years or less) and buying longer term securities (6 years or more).
  • If effective, this action will reduce longer-term mortgage rates like the 10 year Treasury that is closely correlated with mortgage rates, thus mortgage rates may come down a bit, too.
  • One other specific tool that the Fed will use to get mortgage rates to react is that it will reinvest principal payments from agency debt and agency mortgage-backed securities in agency mortgage backed securities. Basically, the Fed will increase the amount of money available to purchase mortgage-backed securities which should push mortgage rates down. Since August 2010, the FOMC had been investing these payments in longer-term Treasuries instead of mortgage-backed securities.
  • One reason mortgage and other long-term rates may not come down much further is that the Fed action was no surprise. In anticipation of the Fed action, 10 year Treasuries and mortgage rates had already dropped substantially since the end of July.
  • Treasury rates were down to 2 percent from 3 percent while mortgage rates were down from about 4.5 to 4.1 percent.
  • Since the announcement, Treasury yields fell from about 2 percent to as low as 1.7 percent, so mortgage rates may come down a bit further in the next week, but the majority of the move down occurred before the Fed announcement. In fact, today rates have moved back up to near 1.8 percent and looking at daily mortgage rates, some have moved down but not nearly as much as in the last two months.

Weekly Forecast

At a glance, this table shows the forecast for some of the most pertinent weekly data for REALTORS® to keep in mind. This changes from week to week as new data becomes available. For the full forecast from the latest Pending Home Sales release, click here (PDF).

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