acting-man.com / By Ramsey Su / January 7, 2013
Real Estate Market vs Mortgage Rates – Let the Battle Begin
On September 13, 2012, Ben Bernanke launched QE3. The Federal Reserve is going to buy $40 billion of agency MBS per month, or $9.12 billion per week.
During the 15 weeks since the QE3 announcement, ending Jan 2, 2013, the Fed has purchased $245.4 billion or an average of $16.36 bn. per week. In other words, the Fed is buying $7.24 billion more per week than announced. There are currently $927 billion of agency MBS on the Fed balance sheet. The $7.24 billion per week is the amount the Fed is re-investing as previous MBS are being prepaid. At this rate, the Fed will turn over about 40% of its portfolio this year.
If we use the average MBS purchases since QE3 began, the Fed is buying at a rate of $850.7 billion per annum. Let us put this number in the proper perspective:
1. According to the Mortgage Bankers Association, the US originated $1,712 billion of mortgages in the four quarters ending Sept 2012. At its current pace, the Fed is buying 49.7% of all originations.
2. According to Freddie Mac, for the first eleven months of 2012, 80% of the mortgage originations were refinances. This is a weighted average, so we can assume $1,270 billion of the originations were refinances and $342.4 billion were purchases. In other words, the Fed is purchasing 100% of all purchase mortgage originations plus 41.4% of the refinances.
3. Approximately 90% of originations are agency conforming and those are the only securities that Bernanke can buy. With this adjustment, the Fed is actually buying up a whopping 55% of all conforming originations.
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