Last week the Federal Reserve stated that employment is nearing the point that they will relax the downward pressure on interest rates. This translates to rising rates in the hopes that investors will buy secondary mortgages for investments. To date the Fed has been investing $60 Billion per month on mortgages down from $80 Billion per month this time last year. Interest rates need to rise from the current 4.5% 30 year rates (http://www.fnbalaska.com/hlc_rates.html) today to something higher to entice those investment dollars to enter the market. Check out this statement from economist Elliot Eisenberg:
The most interesting thing to come out of last week’s Fed statement wasn’t that the Fed Funds rate will start rising in 2015 or that the unemployment rate isn’t the single most important number, but that the Fed expects the rate at which interest rates rise will be much slower than in previous recoveries. To wit, they currently expect Fed Funds to rise by just 2% between now and 1/16.
That is 2% in less than 2 years and we have not seen a rise or fall in rates of that much in any 2 year period since the 80’s. Put this in perspective a Priniciple and Interest payment on a $250,000 mortgage at 4.5% is $1,267 per month and at 6.5% interest is $1,580 per month. This $313 difference in monthly payment is a difference in buyer power of $49,547 or 1/5 of the sales price. I don’t know about you but in our area $50,000 difference today buys a lot more home. If the Federal Reserve is sincere about reversing the policy of keeping interest rates artifically low then now is the time to Buy and to Sell before these changes take effect. Hope to see you soon, I am available to list and to help find you the right home!
