The Trend Is Not Your Friend

The Trend Is Not Your Friend

The Trend Is Not Your Friend - For Interest Rates


Interest rates are currently at their highest level since April 2014.   That may seem alarming, but keep in mind, they are still historically low and would have to jump quite a bit to be considered "high".  So, this is certainly not a time to curtail buying and selling real estate, but you should stay in the loop as to what is forecast for the year.  Moving sooner rather than later, if you're planning a move, will probably guarantee you a lower rate (and home price as well as homes are forecast to increase in value this year too). 


What is causing rates to go up?  Several things, but the most important factor is the bond market.  A strong bond market keeps rates low and a weak bond market coupled with a strong stock market cause rates to go up.  The current administration is pushing for additional funding for infrastructure, the military etc.  They issue additional bonds to pay for the increased national debt.  The bond market therefore has an oversupply and low demand with the stock market at record highs (even with the recent market corrections).  This causes the prices of bonds to go up (as the government tries to entice people to buy) and interest rates to rise. 


Another factor is the fear of inflation that is being generated by the strong stock market.  The Fed has been pretty consistent that they will hike the fed rate at least three times this year.  There is even talks that that rate will go up four times this year in order to get a handle on inflation. 


Are there any scenarios where rates correct back down?  Of course, but they're less likely.  Another country leaving the EU would probably cause interest rates to drop.  A BIG correction in the stock market (we're talking like 10%) would cause rates to go down.  Natural disasters or world unrest would also cause rates to drop.  At the end of the day the "trend" is going to be higher, especially as they've been somewhat artificially low given the economy rebound and are finally catching up with it. 


For this area in particular, we will still continue to see high demand for real estate.  We have a ton of tech money relocating into the area with companies like Woodward and Google and not enough real estate to account for demand.  Water taps are difficult to access for new construction, meaning the supply is not accommodating the demand which is driving up the price of existing homes.  Many news outlets are deeming us the "new Silicon Valley" and Realtor.com has said that the Front Range of Northern Colorado is the number one "most recession proof" area of the country.  So if rates are making you nervous, just remember we have a vibrant thriving local economy, we are one of the best places in the country to live (on numerous top ten lists for retirement, families, Galup's "Happiness" Poll etc)  and will be for years to come. 


Even if rates go up, demand will not cease and real estate will still be a profitable investment, it's been historically one of the most solid investment choices you can make.  The important thing is to buy within your limits and be willing to "hold" your real estate should we see another correction.  Real estate should always be considered a long term asset for most people and is the corner stone of wealth accumulation. 


Sarah Rowan Headshot
Author:
Phone: 970-397-5774
Dated: February 8th 2018
Views: 1,637
About Sarah: Sarah was a licensed real estate agent for 10 years before transitioning into the mortgage industry ...

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