Targeting 4%

Kelly Letter subscribers read several times last year that they should prepare for bargains in the real estate market, not just because prices were falling and were expected to continue falling, but also because interest rates would get low. The rate targeted was 4%.

Yesterday, as we expected, the Fed announced that it would enter the Treasury market in a big way:

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

That will help along our intended Treasury trade (no details here, I’m afraid) and also stands a good chance of getting 30-year fixed mortgage rates down to 4%. That’s probably be the lowest rate you’ll see in your lifetime, and you should prepare to take advantage of it.

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