Guidance for The Movement in the Real Estate Market

Market Snapshot – To taper or not to Taper?

Original article prepared by the California Association of Realtors:

This article outlines some of the causes that have been created due to the policy decisions made by the Federal Reserve last time that they met.

It also outlines some of the possible reasoning behind why the Federal Reserve chose not to make changes to the rate of the Bond Buying Program.

To Everyone’s surprise the Federal Reserve decided to not reduce the pace of bond purchases. The bond buying program known as Quantitative Easing was created to stimulate economic growth. The Fed has been purchasing $85 billion of bonds every month since the program was re-launched last year. The hope was that the program would stimulate economic growth by keeping interest rates low. The lower interest rates would encourage households and business to spend and invest. The lower interest rates have significantly impacted activity in the housing market which has been experiencing positive growth since the beginning of 2012.

Speculations are that the Fed did not see that actual economic growth did not meet expectations forecasted earlier in the year and that is why they decided to not to lower the bond buying rate. The Fed’s decision confirmed that the economy is still moving at a subpar rate. The unemployment rate and the job creations figures are one of the major areas of concern for the Fed. The unemployment rate for the month of August in California was 7.3 percent, which is .8 percent lower than what it was in August of 2012. They mention that the lower unemployment rate was more a factor of workers who decided to exit the labor force and not caused by job growth.

In May of this year, the Fed had insinuated that the Fed would start reducing the rate of bond purchases in the fall of this year. Just that insinuation led interest rates to rise approximately one percentage point to 4.5 percent on a 30-year fixed mortgage. The increase of the interest rate had an adverse impact on the housing market by eroding affordability of homeownership for some families.

We would like to take the time to point out how important it is to know or at the very least review the policy decisions made by the Fed after each meeting. The policy changes have a far reaching effect into many industries including the housing market and the entire real estate field. I do not consider myself an expert in these matters, but I have found that by doing a little reading and research I can usually find articles on how my field was affected by the policy changes.

Thank you for taking the time to read and keep Kinetic Real Estate in mind when you are deciding to purchase a new property. We would love the opportunity to make a raving fan out of you.

View original article by California Association of Realtors