Forget the Fed - interest rates aren’t going anywhere
Paradise Sharks has told you for years to not worry about interest rates. Believe me, we truly care about where interest rates go as nothing else plays a bigger role in how much real estate sells and at what prices. However, we also understand the markets are manipulated and if interest rates rise too far, well how much real estate is selling would not be our main concern.
To prove our point, look at what happened this week. On Wednesday, the Fed raised the benchmark federal funds rate by .25%. Guess what? Since they did the average overnight rate on a 30 year conforming mortgage has dropped by 10 basis points. The Fed raises rates and you can lock in a 30 year mortgage at a better rate. Go figure.
This isn’t something new. On December 14th of last year, the Fed also raised their base rate by .25% but look at the chart. This shows the average overnight rate on that 30 year conforming loan from right before the initial cut was made back in December. If the cost of banks to borrow money has increased by .50% one might ask themselves why the cost for home buyers to borrow money has gone up only 5 basis points.
It’s the same reason the stock market is trading at record highs. Nobody believes the Fed can keep raising rates as the results would be disastrous. Sure rates can go up a bit. After all, it has been over 6 years since the rate on that 30 year fixed mortgage was at 5%. Could it go there again? Certainly. But much higher then watch out. At least until we get debt and spending under control.
You see the national debt here in the United States is getting ready to cross over the $20 trillion dollar threshold. Every 1% in interest rate increases means a $200 billion increase to a budget that hasn’t been balanced for two straight years since Dwight D Eisenhower. Ike left office over 55 years ago. President Trump, love him or hate him, has vowed to be the first President to balance the budget since Ike. I pray he is able to succeed.
But the national debt is only part of the equation. Money has been so cheap corporate America has been borrowing too. A lot. Since the first quarter of 2009, corporate debt has grown by about 60%. The reality is both our government and out corporations need to get spending under control before interest rates can rise too far or the results could be disastrous.
So don’t worry too much about interest rates. Sure they can go up but don’t look for them to move too high. If they move too high the value of your home will probably be the least of you worries.
With real estate Paradise Sharks wants buyers and sellers to make educated decisions. Always interview three brokers when doing anything real estate. Ask a lot of questions and find someone you trust to assist you with what is a huge financial decision. If you are anywhere in Palm Beach or Martin County Paradise Sharks would be honored to be included on your interview list. You can reach us any time at firstname.lastname@example.org or 561.308.0175.