When Mortgage Interest Rates Rise, Housing Cools

By Eddie Speed, Editor, REal Income Alert

Over the years, we’ve learned that potential homeowners are very sensitive to interest rates, even more so today. A small increase in interest rates – from 3.5% to 4.5% – can cause home sales to drop by almost 100,000 units. In fact, that’s exactly what happened in the first quarter this year. Look…
 

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So the question we have to ask is: How long can interest rates stay this low?

My answer is: Ask the Fed.

When the Fed first hinted at plans to taper its $85 billion a month Quantitative Easing (QE) program, the markets plunged and banks started raising interest rates. As soon as that happened, mortgage applications and home sales slow.

Then rates settled back after the Fed announced that QE would continue unabated for the indefinite future, and by “indefinite future” it meant when they felt the economy had recovered sufficiently to handle it.

New Home Starts shot higher in November, but mortgage applications fell like a rock a couple of weeks ago, and have been dropping for several weeks in a row.

Then last Wednesday the “indefinite future” arrived and the Fed announced its first taper initiative.

It’s still too early to tell, but if the housing market reacts badly to the Fed’s tiny taper, the Fed may put further reductions on hold “until the economy improves.”

So what does this mean for opportunities in the real-estate market NOW?

Well, this move will force more creativity in a market that currently leans towards traditional financing methods. Those who learn how to tap into that niche, creative side will have a happy 2014 and beyond.

That’s why Eddie’s prepared his Cash Flow for Life webinar, which we’re broadcasting on December 30. Register now to listen to it.

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Categories: Housing Market

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