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Interest Rates-Supply and Demand

Interest rates Historical Averages

Interest Rates Economics

Will interest rates go up or down this year ? What affects interest rates ?  The two questions are the most often as questions I get in the mortgage industry besides the obvious can I qualify for a home?  Although all of these questions tie together a simple overview of  interest rate economics can prove to be beneficial.  If any one person could forecast with 100 % accuracy if interest will go up or down they could become wealthy beyond measure.  For the sake of simplicity let’s break this down as the 2 questions at the beginning of the paragraph are presented.

Interest rates immediate future

While all the best knowledge and best economics brains in the world can never be perfect when determining interest rates a fair and reasonable student would first look at the history.  Historical averages year to year, month to month and events that had an affect.  For example, when I first entered the Real Estate business Jimmy Carter was president and mortgage interest rates peaked at 17% during my short time as a Realtor.  During his administration the average was 16.67% , it was painful.  Quoting Currently there is no disputing that interest rates remain near historically low levels.  Economists forecast suggest that rates will remain generally low for some time to come while at the same time acknowledging there is considerable risk that in the future interest rates will rise. Historically, during election years interest rates remain stable and for many years now the Federal Reserve Chairman has been reluctant to raise the prime interest rates even at small increments.  The message sent to consumers when the prime rate is goes up has a proven history of impacting interest rates of mortgages and consumer loans and thus in turn affecting growth, and any Administration wants economic growth.  Therefore my contention is interest rates for the immediate future will remain at historical lows.  World events suggest raising of interest rates would not be in the best “interest” (pun intended) of American  and World economy such as Great Britain’s vote to leave the European Union.  A rise of interest rates would add another blow to the unknown.  Another major event world wide is the current political climate, although every nation has their views the one thing in common is the concern for their own economies so there is many political and economic activities world wide taking place to encourage lower interest rates and boost trade, in turn boosting economy through purchase power.  Having said this timing of a home purchase is everything and now is of essence, if you are considering a new mortgage for a new purchase or a refinance to reduce payments, this is a very good time to do just that.

Interest rates for the borrower

For the interest rate sensitive consumer a slight perk up or down can make or break a closed mortgage transaction.  If interest rates creep higher the Real Estate market will begin to react with slowing sales, if interest rates accelerate upward quickly like they did in 1982, new home purchases will come to a stand still.  When markets slow, home prices react accordingly and stall, so the well heeled investor will often make their biggest advances and wait out the market but for the average borrower homeowner they will wait until home prices drop and or interest rates drop so they can afford to make the monthly payment. This cycle is the real affect of supply and demand.  If there is no demand for new home construction due to high interest rates, new home sales will go flat, jobs become harder to find and keep, less dollars are available to buy goods.  For an econoists they will always look towards a delicate balance of supply and demand.  For the consumer, they are really just looking for an affordable payment.

When do I buy a house?

Now !! Whether you rent or buy a house, you will pay for the place you live.  As a homeowner you build equity.  The real truthful answer for the average borrower is buy when you can afford to buy.  Stretching your finances too far may have a devastating result but consider this with interest rates at historical lows and the American economy still trudging along as indicated by the new jobs statistics it would seem now is best.  A home is the single best investment an individual can make over a lifetime, it will provide financial security and stability provided the borrower purchases what they can afford.  There are many loan products available for the borrower.  The most popular is a FHA fixed rate loan.  FHA offers the same interest rates for the borrower with poor credit as they do for the borrower with excellent credit.  One of the biggest advantages to an FHA loan is a low down 3.5% down payment, this can be gifted money from a family member and a borrower can qualify along fairly liberal FHA guidelines for example with a minimum FICO credit score of 580.

Interest rates and Job Market


American economist have published many statistics that are available for public review and it is no secret interest rate is tied to the U.S. job market.  As earlier mentioned the Federal Reserve Chairman sets the Prime interest rate and currently the Chairman has stated slow job growth continues to stall any interest rate hikes.  In May of 2016 the Federal Reserve announced they did not intend on raising interest rates due to poor job growth and slower than desired improvement to the U.S. economy.

The Larry Stepp Team at Gustan Cho Associates can be reached 7 days a week, holidays and weekends.  I invite you to subscribe to my newsletter and informational articles posted will be sent directly to your email.


Larry Stepp     407-922-4755


The information contained on website is for informational purposes only and is not an advertisement for products offered by Loan Cabin or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates and do not reflect the policy of GCA, its officers, subsidiaries, parent, or affiliates.

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