The initial reaction was seen on Wednesday, when Mortgage Industry Equity Composite component KB Home closed 8.22% higher.
Brent Nyitray, director of capital markets at iServe Residential Lending, answered his own question about the effect on interest rates.
“The markets will now begin to fret about the December meeting, which isn't going to be bond bullish. I think if you are considering locking right now, you do it. 2.7% seems to be resistance on the 10 year, and we could be looking at a 2.7% to 3% trading range. At these levels, take the money and run,” Nyitray said.
Fannie Mae chief economist Doug Duncan said that the Fed has provided consumers with another “window of opportunity” to refinance or purchase a home at low interest rates.
“The revised Fed forecast more closely aligns with our growth forecast since the beginning of the year. Overall, this is a positive for continued recovery in the U.S. housing market but extends the risk that QE policy will result in market distortions both domestically and globally,” he commented.
Fitch Ratings said the decision will lead to increased origination volume in the near term. The Fed announcement should reverse some of the market trends which occurred as rates rose in recent months.
It added, “While still representing a very modest part of the mortgage market, a short-term boost in mortgage volume may also result in a modest increase in residential mortgage-backed securities volume later this year.”
An analyst’s report from Keefe, Bruyette & Woods talked about the impact on mortgage real estate investment trusts. The delay, it said, has both short- and medium-term implications.
“It’s a funny place they’re left in, as a steeper yield curve presents a better net interest spread environment for mREITs (all else being equal), but the process of getting there can be painful for book values for REITs not fully hedged. In the very short term the sharp curve flattening favors less hedged REITs that have sold off sharply,” said KBW.
Tapering expectations will likely continue to hang over the sector going forward and its general bias is toward those REITs more fully hedged.
Mortgage-backed securities basis could retighten, which it called a positive. “If we had to guess we'd expect a modest tightening that could add a couple percentage points of positive impact to book values across the group. There are agency MBS specific dynamics that lead to basis widening as rates rise, which we believe has occurred over the past several months,” KBW said.