The Fed Reserve has been warning for years it plans to raise interest rates, but never follows through on the plan. It gets scared because the economy doesn’t look good, and then backs off. The Fed warned yesterday that it could raise rates in June.

Just the warning could send folks running to brokers to refinance (again) or buy something asap. If the Fed were really to do it, it could depress home prices — or more.

Should we take it seriously this time?

 


What's Your Take? Leave a Comment

  1. I’m not sure why anyone would worry that the Fed may raise rates unless you have a directional bet on the level of interest rates? “Worrying” would put you in the class of real estate speculator rather than home buyer.

  2. Agreed, slopefarm, but that is a small number compared to actual homeowners. If a change in rates would change your purchasing decision – and I’m sure it happens – then you were probably at the tighter end of affordability metrics to begin with (and with stricter underwriting standards, its questionable as to whether you would easily qualify to begin with). Will it cause some people to move to lower priced and potentially smaller homes, sure. I don’t see how existing homeowners are affected unless you are marking your homes value to market every day. With typical holding periods of 5-7 years, it shouldn’t matter. To speculators, it may matter more.

  3. This conversation seems to be about the effect it would have on homes, not someone’s investment portfolio. At the same time, you are overestimating the effects. Sure, they will underperform when rates rise – that’s the nature of the bond market – but retail investors are generally buy and hold – older folks who want steady income, so the absolute level of rates won’t matter much to the mom and pop investor unless inflation moves rigth along with it. These are investments with fixed time frames, so over time you are moving down the yield curve. At the specific time, you should compare your coupon with the current level of interest rates at the remaining time to maturity. Institutional investors are sitting on a number of low coupon bonds- again, the “life” of their investments shorten as time passes. They also have constant cashflow to average returns up as bonds mature or are redeemed and they are able to invest at current market rates in the future which would be higher than what they are currently.

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