A glimmer of good news this week - the Federal Reserve announced that it will not aggressively taper their purchasing of treasury bonds to keep interest rates low. When the Fed announced that they may start tapering their bond purchases last month, interest rates climbed over a full percentage point in just 3 weeks.

Although this announcement by the Fed is unlikely to result in the amazingly low rates we saw just a few months ago, it does mean that average 30 year fixed mortgage rates should sink back into the sub 4.5% range and may even get close to 4%, In fact, rates dropped from a national average of 4.57% to 4.42% in just one day after the Fed's announcement.

Take a look at the correlation of Treasury Bonds and Mortgage Rates.

Mortgage Rates and Bond Yields

Ultimately, lower rates mean more purchasing power for buyers. For every 1% that mortgage rates rise, a home price would have to lower by about 10% to keep one's monthly payment the same amount. So higher interest rates put downward pressure on home values based on its effect on affordability.

No one can assuredly know what interest rates will do. But almost all financial experts expect rates to rise as the economy recovers. Eventually the Fed will taper their bond purchases and rates will rise. It is more a question of when this will happen. The Fed is almost certain to start their taper if there are signs of inflation. The key is to lock in your mortgage before this happens. This way, you enjoy a lower interest rate while your asset, your home, appreciates more rapidly as a result of inflation.

With the latest posturing by the Fed, it is apparent that the end of bond purchases is in the foreseeable future. It is looking like now may be the time to take the proverbial "bird in the hand".