Get ready for the media freak out. Besides a re-hash of last night’s Republican debates — the most substantive thus far, in my opinion — everyone is talking about an expected interest rate hike today from the Fed. I had two media calls yesterday asking me if I thought a rise in interest rates might hurt or slow our blazing Dallas real estate market.
Nearly everyone believes the Fed is going to raise interest rates for the first time since June 2006. If so, the federal funds rate — which is the wholesale rate banks charge each other for overnight loans — will tick up a quarter percentage point from near zero.
Only one-quarter of a point. But experts say that may begin a chain reaction that leads to higher rates in 2016.
My favorite New York-based Real Estate guru Jonathan Miller looks at why have rates been so low for so long — basically a cruddy economy and slow job growth? And he asks, is it really time to raise them?
Looking at the charts it seems like no, though it would be nice to have banks pay us some money for keeping our money in their banks. Right now, the rates banks pay savers are so insignificant, it almost makes no financial sense to have large sums in the bank. That’s one reason why real estate investment has been so strong.
Secondly, a quarter of a percent is nothing. I remember Paul Volker’s days of 18% interest rates. It was like paying an HOA fee on top of your mortgage. He was trying to wrestle inflation, which was feverish. Then, people were buying houses to make money on them. Today, they are buying houses (or investing in the stock market) because you cannot make money saving it in the bank.
Which makes me wonder if a more significant rate hike would cool the market a bit.
Also, I wonder if Millennials, who have no experience with higher interest rates, might be scared off by a significant rate increase. Remember, this is the generation that, like their grandparents, doesn’t like debt.
What do you think? Would an interest rate hike hurt your real estate search or your business if you are in the business?