Is It Time To Buy A Home Before The Rates Go Up

Dated: 07/01/2015

Views: 1332

More On The Fed

As we have discussed, the Federal Reserve Board is moving closer to raising interest rates. We have mentioned several times that the Fed controls short-term rates directly and influences, but does not control, longer-term rates. This topic is important to understand as we watch the economy this year. The Fed sets the "Discount Rate" which the Fed charges member banksto borrow funds in the short run when they are short of reserves. The Fed also sets a target for the "Federal Funds Rate" which is the rate banks charge each other for short-term borrowing.

Without getting into too much technical detail, these are very short-term rates. Thus ,when the Fed moved both rates to near zero as a reaction to the recession, rates on short-term instruments, such as six month treasuries, moved close to zero as well. Long-term rates moved down as well in reaction to the same forces that caused the Fed to lower short-term rates. Why is this important? This is important because the Fed is likely to increase short-term rates shortly.

And many are thinking that long-term rates, such as rates on home loans, will move up automatically. Well, rates on home loans have already moved up from their low levels of this winter in anticipation of this move. Therefore, when the Fed moves rates up, if the markets feel that this is the only move coming for the foreseeable future, long-term rates may not move at all. On the other hand, if the economy keeps getting stronger, long term rates will continue to move up regardless of what the Fed does. As a matter of fact, if the markets feel the Fed is not moving quickly enough, rates could move up even faster because nothing spooks the markets more than the specter of inflation.

 

Blog author image

Carolann Newton

I was a domestic paralegal for 8 years prior to Real Estate. Since I have been in Real Estate I have grown to love this business, even though it does have it's challenges; it is very exciting. There i....

Latest Blog Posts

Move In Ready 3 Bedroom Cape Cod In Easley

29640 - Holly Tree Hills subdivision offers this move in ready 3br/2ba Cape Cod. This home offers so many updates to include new laminate flooring throughout, new tile flooring in baths, granite

Read More

New Two Story Home Under Construction In Williamston

This lot is conveniently located near downtown Williamston and the home is to be constructed on this cul-de-sac lot. Affordability with three bedrooms, two bathrooms and 1,279 sq ft provide plenty

Read More

New Price For A New Home In Seneca

This lot is located in a very desirable subdivision and has many amenities for a life of enjoyment! The picture provided is a rendering of the craftsman model and is to be built on this lot. Will be

Read More

Starter Home

Great first time buyer home.103 Lynch Street$104,900 Single Family 3 Beds, 1 Baths, 1 Half Baths, 1,000 Sqr Ft, Pendleton Just Listed29670 - Affordable country living! 3 bedroom, 1

Read More