Interest Rates May be Moving up

As the U.S economy continues to stabilize and pull out of the mess that has ended up being the worst recession on record since the great depression, mortgage rates has gone to record lows. Bernanke, who runs the Federal Reserve, made a decision in 2008 to push interest rates as close to zero as possible. He did this to increase borrowing in the market place, to hopefully stimulate the economy.  The upside to that has been the ability to borrow money for real estate at essentially no interest. That is to say the interest you pay on your home is so close to the rate of inflation, you are getting a loan without any real cost. That is significant over the life of a 30 year mortgage and a huge savings to the owner. This is a once in a lifetime deal.

This can translate into real savings when buying a home. Take Denver, for example, where Denver Colorado homes average sales prices are up 19% over last year and have essentially erased the extreme drop in prices caused by the recession. Just a few short years ago many home owners who had recently purchased a home were underwater. Now with the market at break even they can sell without worrying about owing a bank at closing. Additionally, when buying a home with interest rates so low, a home owner can buy much more house without paying more. It’s like shopping after Christmas and getting everything at close out prices. But, that is about to change.

As the economy heats up, so does inflation. It’s simple economics, more dollars chasing fewer goods means things start to cost more. If you pay attention to gasoline prices you see this on a daily basis. What drives gas up and down is demand. If it weakens the price falls, if it strengthens, they go up. The Federal Reserve has committed to keep rates at 0% through the end of the year, but as inflation starts to move upwards, they will try to choke it off by raising interest rates. That likely will happen in 2014 at some point. So if you are considering a home purchase, now is the time to start looking.