Question

You were planning to purchase a house this month with a mortgage then just learned that the Fed will conduct Open Market Purchase.

Your situation is flexible in terms of the timing of the purchase; right now or later.

It is assumed that everything else stays constant.

What’d be best strategy for your purchase? Explain using economic theory, not as a personal finance advisor.

Answer 1

The best strategy would be to delay the house purchase to take advantage of the potential decrease in mortgage interest rates caused by the Open Market Purchase.

Step-by-step explanation:

The best strategy for your house purchase in light of the Fed's decision to conduct an Open Market Purchase would be to delay your purchase until after the Open Market Purchase has taken place.

Open Market Purchase involves the central bank buying U.S. Treasury bonds, which increases the demand for these bonds and pushes down their interest rates. As a result, mortgage interest rates are likely to decrease. By delaying your purchase, you can take advantage of the lower interest rates and potentially save money on your mortgage.

Additionally, the Open Market Purchase is conducted to stimulate economic activity and job creation, which may lead to a more favorable housing market in the future. Waiting for the Open Market Purchase to take effect could potentially result in a more favorable market for buyers, providing you with more options and potentially better prices.