Interest rates sure to rise
Although mortgage interest rates declined for the third consecutive week, down to 4.32 percent from 4.39 last week we anticipate a reversal of those declines, sooner rather than later. Wednesday's announcement by the Federal Reserve that it is easing its quantitative easing, reducing its Treasury investments by $10 billion per month is sure to have an impact. It is the Fed's position, even though nationally the housing market slowed, the economy is improving and it would like to see inflation increase to stimulate investments.
Inflation means higher interest rates or in other words, your money will buy less. Although the Fed has a target of 2 percent inflation and is committed to stopping there, it is not near that rate currently. To provide some insight to its logic we quote from the minutes of that Wednesday meeting:
"The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.
"Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases."
The Fed was cautious not to cause fear by committing to continue its scaled-back approach to maintain confidence in our economic recovery:
"If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.
"To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."
Mortgage rates have risen about a full percentage point since hitting record lows roughly a year ago. The increase was driven by speculation that the Federal Reserve would reduce its $85 billion a month in bond purchases. Now, with the economy improving in many parts of the country and the Fed's reduction in investments, we anticipate a return to upward movement of interest rates, not only for the real estate market, but for the recovering auto market and other big ticket items which have also benefited from extremely low rates.
We are Realtors, not economists but we know that the Fed's purchases have kept rates low. Now, with that commitment waning, there is only one way for them to go. That looks like a good incentive for those considering entering the real estate market or refinancing to act now.
Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.