New construction is up, yet sales are down

Construction up, home sales down in NashvilleMost people thinking about buying in the near future are worried about the impact of rising interest rates on their purchasing power.

And they should be.  The Federal Reserve has been talking about their plan for raising rates for some time.  In a normal recovery, this should have happened years ago.  We’ve had the worst economic recovery since the Great Depression, so the Fed hasn't had the opportunity to revert our monetary policies back to the norm.

In other words, the Fed is still throwing softballs so the weakened economy can knock them out of the park.

We should know more in the next week as the Fed Chair, Janet Yellen, speaks on Friday and more economic indicators are released near the end of the month.

Regardless of what happens over the next week…

Here’s why I think that rates won’t move much before the election.

  1. Markets hate uncertainty and nothing is more uncertain than the current election.  No one knows who will win and exactly how that will affect our economy.  The uncertainty leads to volatility in the securities market and fewer changes in monetary policy.  
  2. Leading economic indicators in the housing market are showing mixed results.  Sales of previously owned homes dropped in July over the previous month and year-over-year.  This was even experienced in Nashville, the top housing market in the states according to Freddie Mac.  Yet, contracts for new home purchases jumped 12% in July to the highest level in nine years.  Hopefully, new home sales can give ongoing relief to a tight real estate market. 

  3. The Federal Reserve Board appears to be split on the outlook of the economy.  In recent weeks, we’ve seen everything from very positive to negative statements from board members concerning the economy.

It’s my opinion that we have a little time to enjoy some of the lowest mortgage rates in history.  It’s impossible to say with any certainty what will happen beyond November.  

So, if you have plans to buy or sell in the near future, then you should consider how this might affect your plans.  

Let me know if you have any questions.

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