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Tom Limoges

September 26 , 2016

Low Interest Rates & Housing Prices

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Helped by low interest rates and an improving labor market, housing prices have risen steadily over the last five years.  This pick-up in housing prices has pushed many regional U.S. markets above the peak reached in 2007.  Evidence of this growth trend can also be noticed in the local markets.  In many ways, the housing market plays an important role in the growth of the economy. 

The “Great Recession” is a recent example of how housing prices can impact the growth of the U.S. economy.  During 2007-2010, housing prices experienced some of the steepest declines in history.  This decline in home values not only affected housing sales, but adversely affected the amount of equity available for homeowners when applying for loans – lowering consumer spending.  With over 2/3 of the U.S. economy driven by the consumer, lower spending led to higher unemployment and further cuts to spending.

The Federal Reserve Bank was aggressive with its policies of cutting the Federal Funds Rate and implementing strategies designed to push interest rates lower.  In hindsight, this strategy has worked to stabilize and improve housing prices.  With low interest rates being a staple over the last decade, many are asking when the Federal Reserve will tighten monetary policy and what impact will this have on future growth.  In our upcoming statement commentary, Mike Moreland, Vice President Investment Services; addresses this  topic of the “wealth effect” created by the “lower for longer” rate policy implemented by the Fed – Stay tuned.

Recent housing data has suggested a slowing in new home sales growth and housing prices from earlier in this year.  Future data will be closely monitored to determine if this is a trend or just a bump in the road.  Lastly, if you currently have a home mortgage or are discussing the purchase of a home, consider speaking with one of Security National Bank’s mortgage lenders about a re-finance or new mortgage.  With interest rates still at historical low levels, ask us for an analysis to determine your interest savings today. Contact us below!

 

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