Real Estate, You, the Fed and Interest Rates
February 4, 2010 · Print This Page
The Fed has certainly been affecting our economy with their bailouts. What effect will this have on real estate in Truckee and Tahoe Donner? The Fed’s Mortgage Bond purchase program has artificially created demand in the bond market, and in turn kept mortgage rates near all times lows even as the stock market had some upturn. The Fed has now confirmed the MBS (mortgage backed security) purchase program will end on March 31st. This means mortgage rates will creep higher in the months ahead. Bond prices, which drive mortgage rates, will once again be dictated by normal economic factors.
So, here are some things to keep in mind for the coming “real market” conditions:
- Inflation leads to higher interest rates.
- If you are a seller, it is time to cut your price and be decisive. If you’re serious about selling your property, adjust your price to where the market is moving, take your lumps and move on, or you’ll be waiting a long time.
- If you are a buyer, it is time to purchase or miss out on the current opportunities. Don’t make the mistake of waiting for everybody else to make a move before you feel comfortable enough to purchase. Many people have made a purchasing decision already, and we never know what the bottom of the market is until it has passed. Here’s one thing you can take to the bank—higher interest rates are the equivalent of a price increase. Don’t wait for prices to drop, the market is indicating we have reached the bottom. When rates go from 5% to 7%, it is the equivalent of a 20% increase in price to the borrower.
Look at the difference just 1 point makes in these loans:
Loan Amount Type of Loan Interest Rate Monthly Payment
$250,000 30 Year Fixed 5% $1342.05
$250,000 30 Year Fixed 6% $1498.88
$250,000 30 Year Fixed 7% $1663.25
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