On May 22nd, we published a Cup o’ Joe explaining the impact of The Federal Reserve Policy on the housing and real estate recoveries. The article explained how The Fed has heavily influenced a recovery in very important ways:
- $85 billion a month bond buying program, using money being printed out of thin air to pump huge sums of money into the financial system. So far, The Fed has purchased more than $3 trillion of mortgages and treasury securities. The bond buying drives down long-term interest rates, but just temporarily.
- Keeping the Fed Fund Rate artificially low at near zero%. The Fed has stated this policy will remain in effect until the jobless rate hits 6.5%. This isn’t projected to happen until 2015, creating greater concern inflation will occur.
There is serious concern that both of these policies could create another “financial bubble” without helping create more jobs. The existing Fed policy could also lead to significant inflation in coming years as the cost of funding the deficit is likely to dramatically increase. Conversely, there is deep concern that once The Fed pulls back on these policies, it could seriously hurt U.S. economic recovery, the stock market, and the housing recovery. Even a small reduction in bond buying could rattle investors and dilute the recovery.
Statements made yesterday by Fed Chairman Ben Bernanke, indicate that a policy reversal could occur during the policy meeting in June. Bernanke’s comments make it clear The Fed is planning on reducing its bond buying activities.
If you’re thinking about waiting to sell your home, you may want to ask yourself a couple of questions:
- How will a big jump in interest rates impact the number of buyers that can afford my property?
- How will a slow-down in economic growth impact the price of my property?
- If The Fed is creating another financial bubble that leads to excessive inflation, how will that impact values?