European Debt Crisis a Boost for US Consumers
Despite numerous national economic factors looking better over the last couple months, the FED has maintained its’ stance to keep interest rates low for an extended period. Assuming the economic outlook in the US continues to improve and job growth is sustained, the FED will abandon this extremely accommodative monetary policy over time.
Interestingly, the most recent impetus to maintain low rates stems from the international community. Concerns over European debt, Greece specifically, triggered last week’s sell off in the financial markets. Grand scheme, if the European Union is able to effectively deal with the debt crisis in Greece and reassure markets that Europe’s banks are solvent, we should see very little effect here on US soil. European policy makers took major steps in that direction today by announcing a 500 billion euro loan package.
However, in the interim it is quite logical that the FED had no reason to rock the boat and maintained its’ position.
How does this relate to real estate you ask…
With a recovering economy, the end of the FED MBS purchase program, and the end of the home buying tax credit, it would make sense to see interest rates start to move higher. Any sustained or significant move in interest rates does more to alter housing affordability than an $8,000 credit could ever hope to. Conversely, interest rates have moved lower in response to the fears abroad. This can be explained by the natural flight to safer assets when stocks are thought to be too volatile or risky. i.e. US Treasuries and MBS.
As I have discussed before, buying demand for MBS lowers interest rates. Mortgage rates are at their lowest level of the year to date. While these levels may not last, anyone buying or refinancing over the next month or so owes thanks to Greece.
The Current National Average for a 30 yr fixed is 5.0%.
Please leave a comment if you have questions about what you read here or would like me to post on a specific topic. Whether or not you are a client of mine, I am happy to open this forum for discussion or to answer individual questions.
Best,
JLC
