Interest Rates Matter
“Consumers have taken the interest rate rise in stride. Expectations for continued improvement in housing persist, and sentiment toward the current buying and selling environment is back on track from its dip last month” Doug Duncan, senior vice president and chief economist at Fannie Mae.
Interest rates, like deficits, matter. No amount of wishful thinking by industry experts can repeal economic principles.
In the words of Federal Reserve Chairman Ben Bernanke “The economy is weak” as is the job market.
Today’s the US Census Bureau announced that new home sales plunged 13%, a clear sign that interest rates are impacting home buying behavior. Higher rates add to the cost of buying a home.
Without improvement in the overall economy and labor market (including labor participation and wage growth), housing can not truly recover. The current real estate market “recovery” has been solely driven by Federal Reserve’s quantitative easing (QE) program that has artificially manipulated interest rates lower. The mere suggestion that QE may come to end end via all the taper talk done by Fed Chairman and his fellow board governors has driven interest rates up 80% since mid May.