What's the Downside of Tapering?

01/29/2014 12:01 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Now that the Fed has finally decided to taper, MoneyShow's Jim Jubak wonders how it will impact mortgage rates and the housing markets that have helped drive the economy higher.

Did the fed give and the fed take away? That's been the worry, that once the fed started to do its taper of its $85 billion a month in mortgage backed securities and treasuries, it would cause mortgage rates to rise and, basically, all of the kind of wealth effect that the Central Bank had engineered, by keeping down mortgage rates, would start to dissipate. We have data in mid-week, on the 23rd of January, that really fed right into these fears, that, basically, we had a pretty good number for existing housing starts, that the annual rate for sales in 2013 looks like it came in about 5.09 million homes sold. That's the best year since 2006, so that's a good number, but the problem is that the number for December came in below expectations at an annualized rate of only about 4.87, so lower than the rate for the whole year. To get an annualized rate, month by month, you basically take that rate and multiple it by 12 and extrapolate out, so 4.87, not a big drop from 5.03, but certainly a drop, and especially, because analysts were expecting about 4.97, so we're looking at lower than expected, and that feeds into the possibility that, with the fed stepping aside, with mortgage rates going up a little bit, maybe housing sales will drop, maybe mortgage rates are going a little too high, and would that have a big effect on the recovery that the fed has engineered, using housing as a driver? That's the worry that's in these numbers and that, I think, is going to cause a lot of head scratching as we go forward in 2014.

This is Jim Jubak for the MoneyShow.com Video Network.

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