At the end of March, interest rates now sit at 6.32% average across the country for a 30-year fixed rate mortgage. While this is lower than a few weeks ago, they are still much higher than a year ago.
The cause is that the Federal Reserve has been raising rates aggressively over the last year to fight persistently high inflation. The Fed's goal of raising rates is to slow the economy and bring inflation back down to a normalized level or target goal of 2%.
Raising rates makes large capital expenditures for businesses or individual households more expensive, thus creating a situation where it is no longer affordable or makes good business sense to make those investments.
Fewer large investments or fewer new homes being built because the financing costs of making those purchases are too high will eventually slow the economy and thus bring inflation down.
While we all want inflation to come down quickly, it takes time for high-interest rates to flow through the system and change business leaders' and households' decision-making.
Furthermore, there is a rather big delay with the economic data that tells us how the economy is performing and whether or not large investments, home purchases, and overall spending is slowing.
This all means that when we realize business leaders-consumers have changed their minds about what investments and purchases are worth making, the economy is already slipping.
If we now look strictly at the household side of the equation, it seems clear that this group is heading toward tough times in the not-so-distant future, thus making the idea of a new home purchase much less likely.
First, we have high inflation. This is making everything across the board more expensive. Consumers' average cost of living is increasing, whether it be groceries, child care, transportation, or clothing. Continue reading "Opportunity To Get Ahead Of The Curve?"