Real Estate For Atlanta Blog

As a small child, I remember overhearing my parents speak about money and with an over-simplistic, child-like perspective I chimed in and asked them; “If you need more money, why don’t you just go to the bank and get some”. It was then that my parents explained to me that the money they take out of the bank was actually money that they put in there too and finally I got it. From that moment on, I had a new perspective on the value of money. As adults, this sounds somewhat humorous because we all know that is how things work. However, it amazes me how few adults actually get the concept of money at a higher level. Since money is printed by the government, many view the government as an endless supplier of money. In reality, asking the government to print more money to pay for things is equally as absurd as me asking my parents to go to the bank to get more money when they had none in their account. Still, this is what is going on as we speak. In an effort to save the economy, the government is really not left with much choice other than to print more money to pay for things that will hopefully boost the economy. In the short term, it seems that the efforts to prop up the economy are starting to work. However, there are future consequences to actions that are being taken today that many have not thought out fully. As the government prints more money, it devalues the money; effectively making each dollar worth less (on some level, this is simple supply and demand). If each dollar is worth less, it will lead to inflation. Furthermore, if the government issues more treasury bonds to raise capital for some of the proposed spending projects, there will be more bonds; which, in effect makes it harder to find buyers for the bonds and it is likely that higher interest rates will need to be paid on the bonds to entice investors to buy them. If it plays out like that, then the Fed will have no choice but to raise interest rates significantly and quickly to keep the value of the dollar from heading towards worthless. Therefore, it seems that we find ourselves in a delicate race against time. We have no choice but to take actions today that will prop up our economy and put a band-aid on things for now; knowing that our actions will eventually lead to new and very different problems down the road. Our best hope is that the economy is able to revive itself to a point at which it can sustain the next blow before the inflationary problems hit us. If it does, then we’ll be able to pull through on a more permanent basis and enter into a more stabilized economic climate. However, if not, then we may have only seen the tip of the iceberg. So what does this mean to investors and home buyers? There will likely not just be a “bottom” to the market; but rather a small window of opportunity. The window of opportunity is the time period at which the positive effects of our actions of today begin to be felt while the negative longer term effects have not fully set in. During this time, one will have the extremely rare opportunity to have the best of both worlds: low interest rates, bottomed out prices, low or non-existent inflation, etc. before the pendulum begins to swing in the other direction ushering in an age of high interest rates and inflation. In my opinion, that time is NOW. If you have been on the fence about buying property, this really is the opportunity of a lifetime. Once interest rates begin to rise, you will quickly miss out on the window of opportunity. Many people don’t realize that a 1% rise in interest rates has an equivalent effect on home ownership costs as a 10% change in price. In other words; buying a home for $200,000 with a 4.5% interest rate will yield a virtually identical payment to getting the same home for $180,000 and paying a 5.5% rate on the loan. It is foolish not to take advantage of this incredible and short-lived opportunity while it is available.

Tags: Economy, Home Buying, Housing Market, Inflation, Interest Rates, Mortgage Rates

10 Responses to “Low Interest Rates Can Not Continue Indefinitely”

Leave a Reply