For those of you who have been living in a hole, mortgage interest rates over the past few years have been historically low.
According to www.mortgage-x.com, the 30-year fixed interest rate for a mortgage was 7.5% in February of 1994. It was 9.25% in February of 1995. It was 8.5% in February of 2000. In February of 2013, it was 3.5%. Today the interest rate for a 30-year fixed rate mortgage is about 4.5%.
The reason for rates being so low has everything to do with Quantitative Easing. So what exactly, gentle reader, is Quantitative Easing?
Investopedia defines Quantitative Easing as: “An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.”
In lay terms, the Federal Reserve Bank, which is a privately held company, has been buying a ton of U.S. Government Treasury bonds in order to free up cash so we the people can take advantage of the incredibly low interest rates, borrow money, and use it to buy things like houses.
The Federal Reserve Bank, which lends money to other banks and fixes the prime interest rate, has kept the rate that they loan other banks money incredibly low and supposedly will continue to do so. As a result, the banks have had a lot of money to lend at very low interest rates.
Hmmm, it begs the question: How does helping banks make more money improve the economy? It’s not one to answer in a pithy newspaper column, so we’ll instead turn our attention to interest rates and Quantitative Easing, and what those things mean to us as consumers.
The Federal Reserve put Quantitative Easing into action for a limited amount of time and with very clear goals in mind. It has completed its goals: unemployment is below 6%, the housing market is almost recovered, consumer confidence is up and, most importantly, banks are solvent again. QE is about to stop.
What does this mean to Pat and Chris, our LGBT couple who are thinking of buying a house and are looking for a very low fixed rate mortgage? It means that they, and anyone else who is thinking of buying a home, had better start looking because interest rates are going up.
The Federal Reserve Bank is going to stop buying bonds. They are also going to slowly begin to increase the prime-lending rate. “What?” you say. “The Federal Reserve Bank is going to raise the rate they loan money to other banks?”
Yes, they are, because the Federal Reserve Bank is a privately held company and companies like to make money.
Business is back to usual, and those looking to take advantage of the historically low interest rates better start taking advantage.
If you are looking to buy, expect to encounter a lot of competition over the next year. This means prices are going to go up in the Bay Area as sellers refinance their homes and buyer competition drives prices up.
If you are looking to sell, now really, really, is the time. With inventory being low, prices are going to spike. As we move into the slow season, November through January, listing your house now begins to make sense. Lower inventory and buyers looking to take advantage of low interest rates are going to be flooding the market eager and afraid of losing out on low 30-year mortgage rates.
The bottom line is that now is a historically good time to buy. And because the market in our area has recovered, and may even be better than pre-crash, it’s a great time to sell.
America Foy and Taylor Sublett are top producing real estate agents with Sotheby’s International Realty in Berkeley. Call or email them if you want to buy or sell residential, commercial, or investment properties throughout the Bay Area. Bay Area natives, and recent East Bay residents, Taylor and America will help you sell in Alameda, Contra Costa, San Francisco, San Mateo and Marin Counties. America Foy: 510-473-7775, america.foy@sothebysrealty.com; Taylor Sublett: 510-301-9569, taylor.sublett@sothebysrealty.com
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