Interest Rates | Denver Real Estate Stats

The Impact of Lower Interest Rates

This past week the government announced that home sales for the month of July were down. The media reported the story of gloom and doom and some buyers ran for cover quickly as they predicting things like continued decreases in real estate prices, and the famous double dip. Many in the know yawned as they heard this news, as they knew it was coming. It marked the end of the leftover deals from the government’s tax credit which ended in June. The news itself made many potential buyers ask the same question they have asked themselves over and over again, Is it a good time to buy?

Then the rumor started to spread that because home sales were down the government was going to have to come out with a new tax credit or some other stimulus package. Naturally buyers had to ask the question again but word it a bit differently. If there is a possibility of a new tax credit, is it a good time to buy or should I wait?

A new rumor hit the street that once again made buyers think twice if it was the right time to buy. There is now talk of lower interest rates. Yes, rates lower than those 4.5% rates you have been seeing could be in the not too distant future. If this is the case as a buyer, Should I wait to buy until rates go lower or is now a good time to buy a house?

With lower interest rates coming, certainly more home buyers will be driven into the market place. The first impact of lower interest rates is that the home affordability index drops, simply making homes more affordable to more people.

The cause and effect has been seen before and it will happen again. In is impossible to time any market. From the stock market, to the real estate market, picking the exact bottom or top only happens out of luck and perception. It you perceive you sold at the top of the market, then you did. Today years after the peak of our real estate prices in the Fort Lauderdale Real Estate market, it is almost impossible to find two real estate professionals who agree when the peak was.

However, when more buyers come to market, and start to buy, because of great prices or low rates, or needing a home, the reason does not matter; inventory starts to shrink (we already see this happening), the days on market for the best homes becomes less (we all ready see this happening), great home priced right, get multiple offers (we all ready see this happening), and then finally as all the pieces fall into place we will start to see prices begin to stabilize and increase.

So the next line is not an original but I have always loved it, with prices this low and interest rates this low, when is a great time to buy a house? When you find the one you like.

So let’s start hunting.

Simply tell us what’s on your Fort Lauderdale real estate wish list, and we are here to help with real answers!

About the Author:
Eric Miller is a broker associate /owner with Keller Williams Realty in Fort Lauderdale. Eric Miller and Associates is an award winning team of realtors and be found on line at www.FortLauderdaleGroup.com. Thinking about purchasing a home in the Fort Lauderdale area Eric Miller provides complete access to all listed Fort Lauderdale Homes for sale. Thinking about a Fort Lauderdale Condominium, you can find all Ft. Lauderdale Condominiums for sale. Eric and his team have worked in East Fort Lauderdale for over ten years where Eric was a top agent at Prudential prior to joining Keller Williams.

Federal Reserve Bank of Kansas City President Expresses Concerns Regarding Continued Low Interest Rates

Although some within the real estate industry are happy to see short-term interest rates remain near zero, Federal Reserve Bank of Kansas City president Tom Hoenig expressed concern in a Denver news article that current system is only fueling economic uncertainty. In fact, at a recent town hall meeting held in Lincoln, Nebraska, Hoenig warned that the current policy should not be viewed as a cure-all to our country’s economic troubles. Further, he cautioned that maintaining low interest rates for too long could potentially lead to another recession along with high unemployment.

“It seems to me that we need to be careful not to repeat those policy patterns that followed the recessions of 1990-91 and 2001,” said Hoenig, whose Fed district includes the state of Colorado. “If we again leave rates too low, too long out of our uneasiness over the strength of the recovery and our intense desire to avoid recession at all costs, we are risking a repeat of past errors and the consequences they bring.”

As a member of the Federal Open Market Committee (FOMC),which is the policy-making body for the Federal Reserve System’s Board of Governors, Hoenig has been the only critic of the committee’s decision to keep the rate at such a low level. With the committee’s decision to keep the rate the same, it remains at the lowest level it has been in 65 years.

With the federal funds rate being the main tool the Fed utilizes to control the economy, Hoenig argues that maintaining such as low rate is no longer necessary. Although he acknowledges that the economy still faces many challenges, he maintains that it is improving. Similarly, while job growth is still less that desired, 630,000 jobs have been created since the beginning of the year. Furthermore, Hoenig reports that personal income levels are up by 2.8 percent and consumption is up 1.6 percent. Additional signs of an improving economy include the fact that housing is up by 5.3 percent and investment in equipment and software is up by 15 percent. High tech is also up by 20 percent, industrial production is up by 8.2 percent and corporate profits are up by 57 percent when compared to the fourth quarter in 2008.

“A zero policy rate during a crisis is understandable, but a zero rate after a year of recovery gives legitimacy to questions about the sustainability of the recovery and adds to uncertainty,” said Hoenig. “of course, the market wants zero rates to continue indefinitely: They are earning a guaranteed return on free money from the Fed by lending it back to the government through securities purchases.”

Hoenig goes on to say that he feels the FOMC can still achieve its goals by increasing the rate to 1 percent and removing the guarantee of low rates while also letting the market know that risks need to be accepted if the market wishes to earn a return.

“We need to get off the emergency rate of zero and move rates up slowly and deliberately,” said Hoenig. “This will align more closely with the economy’s slow, deliberate recovery so that policy does not lag the recovery.”