The Federal Reserve has held off on raising rates for now, but how long will it last?
Buyers have been very fortunate for the past several years to enjoy what has become historically low interest rates. In 2008, the Federal Reserve dropped their base rate (The rate at which lending institutions can borrow money) to practically zero percent. Of course, consumers pay a bit more on their rates, but even still, home buyers have been able to take advantage of rates as low as 3 and a half percent. Currently, rates stand just below 4 percent.
Why are interest rates so low, and why might they rise again?
You might say that interest rates can reflect economic conditions nationally, and even internationally. In most cases, rates rise or fall based on economic forecasts that include the potential for inflation as our economy improves. That being said, in 2008 the Federal Reserve dropped rates in an effort to stabilize the real estate and credit markets, which were struggling due to issues that affected our economy and put the US on shaky financial footing.
Why would rates rise? As our economy improves, there is more money for goods and services, which in turn may cause prices to rise, or “inflate,” due to demand. There’s a delicate balance between inflation that could get out of hand (Known as “runaway inflation”) and putting systems in place that can maintain our economy without becoming volatile or unpredictable.
Raising interest rates has the ability to control the purchasing power of consumers to the degree that it could make them think twice about how they spend their money. This in turn could help to keep the price of goods and services steady, thus avoiding potential runaway inflation.
The Federal Reserve recently held off on raising rates due to our economy not showing any warning signs of unpredictable inflation. That being said, they may revisit this before the end of the year, with news that rates could rise as early as December.
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If you’re on the fence about buying a home, now is the time to find out if you qualify for a mortgage and begin to take advantage of all the benefits of home ownership. Contact Team Avalos today for a no obligation consultation.