The Obama administration and the homebuyer’s tax credit went a long way to stabilizing the housing market, with the Standard and Poor’s Supercomposite Homebuilding Index increasing 30% in 2009. The Federal officials can buy up to $1.25 trillion in mortgage-backed securities with continued support for the housing markets. At this time, they have bought about $860 billion in the mortgage-backed securities program, and $129 billion (out of $200 billion program) in U.S agency bonds.

As the economy improves though, The Federal Reserve will begin to slow down its purchase of mortgage securities. The Federal Open Market Committee said after meeting in Washington:

“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.”

For the first time since August of 2008, policy makers announced that the economy is in fact improving, but that they are committed to keep the interest rates low for an extended period – perhaps into the spring season.

The market is still tough, but there are signs of definite improvement. According to the National Association of Realtors, existing home sales rose 7.2% in July from June, which is the highest level increase in about two years. The Federal Housing Finance Agency index indicates that home prices rose for the third month in a row, with a 0.3% increase in July from June.

Instead of shocking the market by shutting down all government assistance programs at once, the Fed will ease out their purchases and are hoping that other buyers will start increasing their activity to avoid a potential increase in mortgage rates. When the Fed’s stop purchasing mortgage-backed securities, it’s possible that mortgage rates will see a 0.5 to 1% increase.