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Lower Rates, Price Stability Allows Buyers & Sellers to Take Advantage of Fed Stimulus

Wednesday, December 19, 2012   /   by Dan Keller

Lower Rates, Price Stability Allows Buyers & Sellers to Take Advantage of Fed Stimulus


Fed Stimulus

There is something driving the red-hot housing market that today’s homeowners need to know about. What is really behind the real and sustainable jump in housing sales and prices taking place right now? In September 2012, the Federal Reserve announced a plan to invest $40 billion per month to purchase mortgage debt in order to help boost the economy.

They call it “Quantitative Easing” or QE3 and by implementing this stimulus, the Feds are getting results they wanted – continued low interest rates. This spending pushed mortgage rates down from 3.55% in September 2012 to 3.32% in November 2012. Rates may continue to fall while the Federal Reserve continues to work on revitalizing the economy.

What does this mean to the homeowner? For the buyer, lower interest rates translate immediately into more buying power; or more simply put -more home for the same payment. The math is simple as you can see by the following example.

An interest rate deduction of just 1% allows the buyer to borrow more money without increasing their monthly housing payment. A $200,000 loan at 4.65% produces a monthly payment of $1031.27, while a $225,000 loan at 3.65% costs only $1029.28 per month. Home buyers can purchase higher-priced homes without bending their budgets. The majority of Americans buy homes according to what their monthly payment will be. No matter what the price point, the additional buying power creates an impressive ten-percent savings on average in the long term.

The Federal Reserve’s Quantitative Easing program has helped boost the real estate market simply by ensuring that a key component of the economy, the housing market, remains robust. The question is what would happen if the stimulus disappeared tomorrow? Most economists predict mortgage interest rates would rise quickly. Since no one knows for sure when the QE3 will end, interest rates could rise at anytime.

Even though many people feel the Federal Reserve’s efforts were politically motivated and that the $40 billion per month buying program could potentially cause big troubles down the road. On the other hand, many experts believe the program is essential to help foster a continued recovery in the housing market.

According to Charlie Smith, CFO for Fort Ritt Capital, “The Fed’s money creation and federal backing for 90% of mortgage loans is what is keeping the housing market alive.”

For the homeowner, this should be a big wake-up call. It is important to understand the need to sell their homes now before the Federal Reserve closes the $40 Billion a month stimulus for good. There is no time like the present and here is why:

  • With inventories at historic lows there are fewer homes to choose from.

  • More buyers are getting off the fence to take advantage of historically low interest rates.

  • The best properties are disappearing quickly as long-term savings have never been better

  • Buyers are no longer indecisive, but are actively taking advantage of the stimulus.

  • Home prices are on the rise so devaluation is no longer home buyer hindrance.

As for the seller, to avoid being part of the influx of marketable homes in that typically come to market in the spring is of utmost importance to take action an list NOW. This is the best time to list to take advantage of less competition from other comparable properties.

Home buyers planning to purchase a home after the winter is over are actually shopping for homes to buy now. Why not take advantage of the active buyers that are in the market place right now. By listing sooner rather than later the seller benefits as buyers will have fewer choices due to lower inventory, less competition with other homes, and less buyer-favored negotiations in order to close the deal. The best time to list a home and get it sold is NOW, while the Federal Reserve is still pumping money into the economy keeping interest rates down for buyers.

Sellers who list now will also benefit from the increased buying power the stimulus offers home buyers as well take advantage of the largest rise in home prices in more than two years. Home prices increased 3.6% year over-over from Q3 2011, and more than 2.5% since the previous quarter, a clear sign of sustained recovery.

David Blitzer, Chairman of the Index Committee at S&P Dow Jones states, “With six months of consistently rising home prices, it is safe to say that we are now in the midst of a recovery in the housing market”. The latest rise is the second straight quarter of year-over-year improvement and the fourth straight month increases.

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Keller Forsyth Group, Compass
Kris Forsyth & Dan Keller
5796 Armada Dr.
Carlsbad, CA 92008
DRE# 01878277
(949) 492-7653
CalBRE#: 01878277

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