Quote:
Originally Posted by mvbird
If the Federal Reserve finally lowers (and continues to lower) interest rates in September, I think house prices may increase. If buyer's monthly financing costs are lower they qualify to buy at a higher price.
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Cerebus paribus "all else being equal" yes
however, by how much will they rise will be the question. .
confounding influences to your hypothesis
1) the reduction will add more buyers to the current market, yes
BUT will the number of buyers increase beyond the available supply to create a demand push price increase? currently highly unlikely.
2) many home owners with 3% mortgages are unwilling to sell or move for a small reduction in interest rates. . many of the current homes for sale increase is coming from distressed buyers, investors not getting the needed return or cash flow to support their ownership.
3) retirees may sell to downsize with cash, but will the interest rate reduction allow more buyers into that price range, highly appreciated housing?
4) currently the labor market is perfectly in balance, and if the rates are lowered for deteriorating labor market reasons, there will be fewer buyers and the prices will still need to go down for housing sales growth significant increase.
5) given the decline in the US Dollar, given the failure of the last two treasury auctions with a 50 % sold rate, 3 year and 10 year, given that the mortgage rates are not set by the federal reserve overnight lending rate, but are set by the free market, with a large influence by the treasury bond rates, the federal reserve funding rate might not impact long term rates as much as needed for significantly higher rates.
So the answer is not as simple as the fed lowering their overnight lending rate. . and in most cases, very small movements in the FFR has minimal impact on lending rates, as compared to other influences.
and don't forget about any potential minsky moments with the huge increase in the federal debt limit for spending increases. .