We've reached interest-rate bedrock

dave_donhoffMarch 23, 2009

We've reached interest-rate bedrock

Interest Rates Rising Again Despite the Fed's Actions

http://www.cnbc.com/id/29837182


<_snip>
The Fed is trapped. The current buy back program is too small to have more than a symbolic effect. Expanding it, though, would trigger fears about inflationary financing and risks bringing on the rise in bond yields and collapse in confidence and the currency the Fed is desperate to avoid.

<_>

Cheers,

Dave Donhoff

Leverage Planner

Here is a link that might be useful: Interest Rates Rising Again Despite the Fed's Actions

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paulflyboy

You can't put a forest fire out by spitting on it. We didn't get into this mess overnight, and sure aren't gonna get out of it overnight.

Just my .02 worth.

    Bookmark   March 23, 2009 at 11:50PM
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chrisdoc

If interest rates are rock bottom now and people seem to buy houses (and everything else) on the "how much a month" plan, does that mean that house prices have no where to go but down (as interest rates go up)?

    Bookmark   March 24, 2009 at 7:55AM
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dave_donhoff

Hi Chrisdoc,

If interest rates are rock bottom now and people seem to buy houses (and everything else) on the "how much a month" plan, does that mean that house prices have no where to go but down (as interest rates go up)?

I think that's putting way too much weight on interest rates as the defining determinant of real estate pricing and demand.

As proof; rates have been FALLING... but real estate has NOT been rising (to the contrary, actually.)

When people measure "how much per month" it is also relative to a couple other things than cost;
A) how much am I making now?
B) how confident do I feel about the future?

Currently people are feeling hammered in both of those areas, regardless of itnerest rates.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   March 24, 2009 at 2:45PM
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chrisdoc

I agree that "how much am I making now" and "how confident do I feel about the future" are important but I also believe that interest rates impact those decisions.

Up until recently the Fed used interest rate manipulation as the main tool to spur the economy or ward off inflation. Housing is one of the industries that is most directly tied to interest rates. If rates go down housing becomes immediately cheaper and spurs demand which increases prices.

You can argue that the other factors are more important than interest rates but lowering the interest rates also affects those factors. Someone who has a high interest loan may now be able to refinance and have more money available for additional purchases. It also gives business a lower cost of capital for which they can use to expand to meet the increased demand for goods from consumers. Expanding causes more people to be hired and generally improves salaries and confidence in the future.

Sooner or later the fed is going to have to raise the interest rates. When that happens it will have a negative effect on the economy as a whole including housing prices. But since housing prices are not only affected by the indirect forces of the raised interest rates but also by the direct cost increase to consumers, they will likely suffer more than the economy as a whole.

    Bookmark   March 25, 2009 at 9:07PM
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tishtoshnm Zone 6/NM

Just because theym ay have hit rock bottom does not mean they are going to increase rapidly. They may or may not.

Another thing which impacts the housing market is whether or not you can get a bank to loan you the money for the purchase. The rules of the game have changed rapidly and it will take many people a while to adjust and save up that magic 10-20%.

    Bookmark   March 26, 2009 at 9:12AM
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