Inflation, Rates & You

Inflation, Rates & You
The new announcements by the Federal Reserve regarding their new adjustments to inflation are causing a bit of a stir in both financial and housing markets. To provide some context, The Federal Reserve aka “The Fed” has two main goals: maximize employment, and assist in maintaining stable asset prices.
  • If not enough Americans can find work, the Federal Reserve can help by lowering interest rates, thus lowering the cost of money borrowed by corporations, enabling them to expand, leading to higher employment.
  • If asset prices are rising too quickly (inflation), the Federal Reserve can slow that down by increasing interest rates, thus increasing the cost of money borrowed by investors (and corps), making it more expensive to invest (or expand). This slows the rate of asset price increases, and is a measure used to prevent runaway inflation.
For many years, the benchmark set for the desired amount of annual inflation has been 2%. After more than a decade of inflation failing to meet the Fed’s desired 2% benchmark, the Federal Reserve has now announced that it will target an inflation average, which means that they are going to let inflation run above 2% in order to bring the average rate of inflation back to 2%.
In order to accomplish this, the Federal Reserve is essentially promising to keep federal lending interest rates low, and for the most part, mortgage rates low as well (mortgage APR rates may still increase due to lender and other fees).
The current combination of low-interest rates and low housing supply has led to rapid price gains in housing markets such as Phoenix, Minneapolis, Charlotte, and Dallas.
With the Federal Reserve pledging low rates for an extended period of time, the largest remaining factors for housing prices are:
  • Mortgage Lenders – controlling the availability of mortgage credit
  • Home Builders – building new homes to ease supply issues
  • Home Owners – deciding to sell excess housing, introducing more supply
Lenders are already tightening credit availability, and home builders are already responding to the low supply by building new homes in record fashion. These factors will have an effect on the rapid home price appreciation, but will likely not be seen for several months (loans take a month to close, and homes take months to build). The biggest factor, which is current homeowners deciding to sell existing housing stock, which is great if it is an investment property, but if they are looking to sell and buy another, the net effect boosting housing inventory is nill.
About the Author
I've learned through experience that informed buyers and sellers make the best real estate decisions. My top priority is keeping you updated and educated throughout the buying and selling process to ensure you won't be left wondering if you made the best decision.

My fiduciary responsibility to you is to not only be informed on the latest real estate trends in Arizona, but to be available from Day 1 for any questions or concerns you may have whether you're just starting your search or you closed escrow last year. My 100% commitment is a custom-tailored solution for your next purchase or sale, from consultation to close.

I've been helping families move in the Greater Phoenix Area since 2016, but have called "The Valley" home since 2011 and hope I never have to leave. I'm originally from the San Francisco Bay Area, but now live in Optimist Park, Tempe with my dog Katie. When I'm not assisting my clients with their homes, I love to golf, making it to last-minute Diamondbacks games, and breaking away from the city during our many months of great weather.

If you or someone you know is getting ready to buy or sell a home in the Greater Phoenix Area, it would be an honor and privilege to help them. Should you have any questions about the buying or selling process, please don't hesitate to call me at (480) 712-8722.