Janet Yellen was right on schedule this week as the Federal Reserve raised the Prime Rate a quarter point. What was noteworthy was the immediate response from the bond market and stock market which both rallied on the news. Why that happens is because financial markets have known for many weeks that the rate hike was coming so the rate hike was already priced into the markets. In fact mortgage rates actually went down a bit which is contrary to what the public would expect. Remember when the Fed raises rates the immediate impact is on short term rates while long term mortgage rates are directly influenced by the bond market which like the stock market is subject to a myriad of economic and world events. Keep in mind that the Fed is planning on raising the prime rate again later this year and the timing of future rate increases may be determined by just how successful Trump is in getting his pro growth agenda through congress. For a detailed analysis see the article below.
Going into this year the expectation was interest rates rising in response to the Fed’s policy of hiking it’s benchmark rates. That talk has all but disappeared as new deflation concerns have brought about discussions of banks now implementing negative rates for their accounts. If that trend continues mortgage rates should remain low for the foreseeable future….perhaps for years to come. See article below.
LONDON (Reuters) – World markets may have recovered their poise from a torrid start to the year, but their outlook for global growth and inflation is now so bleak they are betting on developed world interest
As most everyone one knows the Fed this last week raised rates for the first time since 2006. If you are in the Keynesian economic camp you may be hesitant to embrace this change, but if you are in the Monetarist economic camp you are thinking it is about time. Of course for most of us who do not follow the latest economic theories we are primarily wondering how this will affect home values and stock portfolios. It is important to understand that this change is not a one time event and does not happen in a vacuum of a narrow time frame. The changes will take place over the months ahead as the Fed considers future increases. Many factors went into the decision to raise rates but the overriding factor was a belief that the economy was stable enough to begin the road back to a somewhat normal interest rate structure that would ensure a stable dollar. How that plays out is where the debate really intensifies and as you can imagine there is no shortage of opinions. The Fed and Wall St actually see the markets from different prism’s and depending on how events unfold it will be interesting to see who is right. For an interesting read on the tension between the Fed and Wall St click the attached link.
Another year of increasing values in real estate. The market benefited from low interest rates and limited inventory. With interest rates possible rising later this year it will be interesting to see how the market responds going into 2016.
If trends hold over the next 10 years, the next decade will see an unprecedented surge in the demand for housing. Millennials, Boomers and Hispanics will be the drivers if 2014 trends hold. This is big, so read on.
Just when you thought interest rates were going up for sure there are now warnings that raising rates in September may cause instability for world markets. Interest rates have a direct impact on real estate so what happens later this month when the Fed meets will impact not only world economies but also for most people their most important investment…their home.
After a strong Spring season, real estate values continue to increase through the summer as low interest rates and low inventory drive the market forward. Look for this trend to continue at least into early fall when the Fed will take a hard look at possibly raising interest rates. Click the link to see July’s market info.
After 28 years of following real estate I am continually amazed at how dynamic the market can be even when economic conditions suggest a slow down would be expected. There is still a strong demand for homes in Southern California and I can’t wait to see what unfolds as we see summer come to a close.
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