How the Fed’s Policy Shift Is Rippling Through the Housing Market

The Federal Reserve’s decision to end its era of easy money is rippling through the mortgage market, driving up the cost of buying a home. 

The central bank had been the biggest buyer of pools of home loans since the start of the pandemic. Now it is reversing course, winding down its purchases and laying the groundwork to shrink the $2.7 trillion stockpile it has built up. These mortgage-backed securities, hot investments for much of the pandemic, are now selling off.

“When you go from quantitative easing to quantitative tightening in two months, this is what happens,” said Walt Schmidt, a mortgage strategist at FHN Financial.

Recent market ructions have hammered securities of all stripes, from blue-chip stocks to junk bonds, pressuring many of the bedrock holdings in investors’ stock-and-bond portfolios. Prices of Treasurys also have fallen and yields have risen, meaning the cost of borrowing stands to climb across the board.