The Federal Reserve, taking a break from its aggressive rate-cutting policy, chose not to alter key interest rates Wednesday, leaving the Fed Funds rate at 2.00% and everyone wondering where interest rates are headed next.
Since last September, the Fed has cut rates seven times for a total of 3.25%. However, many experts believe that the Fed's decision this Wednesday, along with comments from the meeting itself, indicate an increased concern over inflation.
This means the Fed could start increasing rates as early as its next meeting, which takes place in August.
The Fed is in a quandary. The economy has slowed, led by a decline in home sales and rising inflation, stemming primarily from increasing energy prices. The Fed's primary role in relation to the economy is to combat inflation and preserve economic growth. To combat inflation, the Fed will ultimately have to increase interest rates in coming months.
What Does This Mean to You?
If you're client base is looking to buy a house, consider these key points:
- Home prices in some areas are at five-year lows, while personal incomes in that same period have increased. Homes are more affordable for many right now, particularly first-time home buyers.
- Sellers are extremely motivated and many buyers in our area have benefited from the unbelievable deals that exist today.
- Experts foresee a strong rebound in home prices when the economy begins to recover, according to a new report from the Joint Center for Housing Studies. That means buyers today will be sitting on valuable properties tomorrow. Remember, annualized appreciation for homes exceeded 6.35% from 1940 to 2000.
Housing booms follow housing busts - and the savvy buyers aren't afraid to jump into a tough market. But these savvy buyers know that homeownership is a long-term investment. Ultimately, population growth and demographics point to a stronger housing market in coming years.
Even if you're client base is not looking to purchase a home, opportunities still exist. With the Fed taking a breather, this doesn't mean you should be taking a break. It's never been more important to create a financial plan that makes the most sense to your client databases long-term goals.
If I were to guess if rates were going up or down, there is no question that I think they are going up. I agree that the Fed is concerned about inflation.
I completely agree that savvy buyers "aren't afraid to jump into a tough market", but that doesn't mean they should necessarily jump into this one. Each buyer is different. For some, this is a good time and there are good opportunities. For others it does not make sense.
Your final point is a good one. Thanks for the intelligent post.