From the CNNMoney article …
If unemployment falls to 7% by mid-2014, the Federal Reserve will stop buying U.S. bonds and mortgage backed securities, he said. That’s the first hard number the Fed has given for when it may end its stimulus policy, known as quantitative easing.
For now, though, the Fed’s policy and pace of asset purchases remains unchanged.
“The fundamentals look a little better to us, in particular the housing sector,” Bernanke said. “State and local governments are now coming to a position where they don’t have to lay off a lot of workers. The economy is improving.”
This, of course, sent financial markets spiraling. At least, semi-spiraling as what’s a 200-point drop among friends these days. It’s almost as if the markets never thought that the albeit long-term temporary program was going to come to a halt.
It would seem a trip to the library might be in order for these traders. Economic cycles happen. Stimulus programs are enacted and go away. There are multiple points in the timeline of United States history where the government has stepped in to salvage markets and then backed out of the way when the worst of the trouble has passed.
(Personally, I suggest H.W. Brands’ biography of FDR as a nice place to start.)
What does this mean for those of you looking for homes?
Quite simply, interest rates are going to start moving up. Which, in reality, shouldn’t be considered the end of the world.
When I bought my first home in 1998, our rate was in the 8’s. We were thrilled not to be in the 9’s, much less the double-digits of only a couple of years earlier.
When I bought this house in 2003, my rate was in the high 6’s. I was thrilled not to be in the 8’s.
From a historical standpoint, only a fool would believe that interest rates in the 3’s were sustainable. Hell, it only was a year or so ago that a rate in the 4’s seemed like the deal of a lifetime.
It still is. And an interest rate in the 5’s is almost as good.
Not that there aren’t serious dollars attached to the increases. Moving a rate from 4 to 5 on a $100,000 loan moves the payment $100 a month. For some buyers, that may be the difference between owning and renting.
Would such an increase kill the momentum in the Phoenix real estate market? Probably not. It’ll definitely take a chunk out of the pool of buyers but the driving force right now is a lack of inventory. We probably could add another four to five thousand homes onto the market and still not see the market go flat (we’re sitting at about 9,300 detached homes in Maricopa County right now.)
Nothing lasts forever. Not even the panic induced when Bernanke opens his mouth – the Dow Jones is up today, now that the knee-jerk reaction has passed.
Winter higher interest rates are coming.