You may have heard of the Alan Greenspan "briefcase indicator" which suggests whether the discount rate is going higher, lower or staying the same based on which briefcase he walks into the Federal Reserve meeting with (or how full it is). At Angelic, we have our own indicator, what we see out our windows overlooking Michigan Avenue. Lately, it's been a not-so-good story for retail sales, and that, in turn, should hold interest rates down.
Most mortgage brokers have been seeing a boom in refinancings lately, but they also see a potential end to that boom in the very near term. Rates are anticipated to rise in 2007, bad news for mortgage brokers, even worse news for REALTORS hoping the housing market is going to pick up from a down year in 2006. Higher interest rates help hold down the property market as monthly payments rise for the same given price of a home, making homes less affordable at the same price point and often driving buyers out of the market or to lower price points.
That said, the NAR recently issued a report entitled something like "Now is the Time to Buy" based on the combination of low interest rates (currently the lowest in nearly a year and still near 45 year lows) and the depressed asking prices for homes on the market.
As Enoch looks out our windows over Michigan Avenue and Rush Street, there really hasn't been much for him to see the past week, when normally it should be mobbed with shoppers rushing around in advance of the Christmas holiday. Even if not before the 25th, certainly for today, the largest shopping day of the year to return things and one of the largest to buy (since everything is now on after-Christmas sale) it's quite bleak out there. I just took the photo of Michigan Avenue and Rush Street, the heart of Chicago shopping, a few minutes ago, and it's been like this for days - plenty of cars, but not many people on the sidewalks (sorry for the glare, it's finally nice and sunny).
According to MSNBC's recently released report on the day's trading, bond prices ticked higher (lowering interest rates) and early reports from MasterCard show a 6.6% rise in year-over-year sales between Thanksgiving and Christmas, whereas last year's holiday shopping season saw an 8.7% rise over two years ago, and that wasn't considered a fantastic year.
If this continues, I would expect that market concerns over higher interest rates coming soon might cool off, lowering interest rates a little and holding them for a while longer. Maybe the NAR was right - now IS the time to buy.
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Wow great view Gabriel! Home values in my market are declining quickly and still young working class families cannot afford to buy. Most of the folks in my area have service related jobs and with 2 parents working still make less than $50,000 a year. A starter house is about $185,000. Purchasing these with no money down, cost them about $1,600 to $1,800 a month PITI. They can rent the same house for $900 a month. Purchasing does not make any sense for them unless they can count on good appreciation, which they can't. So it will be interesting to see what happens in 2007. My prediction is values will continue to decrease in my area.
Are the top end properties affected as much by interest rates? Or do you have a lot of cash purchasers?