Expect More Rate Hikes & Lending Regulation
A: As the economy continues to show signs of strength the general consensus right now continues to favor another 1/4 point rate hike at the next Fed meeting; the first for new chief Ben Bernanke. In fact, from what I'm hearing from old trader friends is that the rumors at the Chicago Board of Trade bond pits are already pricing in a 1/4 point rate hike for the next meeting, and leading to a final 1/4 point rate for the meeting after that. This would bring the Fed Funds Rate to 5.0% and definitely have an affect on housing as money gets more expensive to borrow.
How does this affect you? Well if you have been putting off buying for the past several months waiting for a slowdown, you may want to apply some time pressure to yourself as you might be faced with a double-edged sword.
On one hand, as rates rise housing prices should be flat to down to compensate. On the other hand, as rates rise it gets more expensive to borrow money when you can lock in a lower rate right now.
Its a tough call because anything can happen between now and the next fed meeting, but this consensus usually is pretty accurate as the new fed chief Bernanke is NOT going to want to mess around with 'The Street' and create an environment of uncertainty which nobody likes. One sign that may convince Bernanke to only raise rates 1 more time is that inflation indicators Oil & Natural Gas have corrected; especially Natural Gas which is now at a 1 year low! Wow, I wouldn't want to be on the wrong side of a trade in that pit at NYMEX!
The Low Down: Expect a 1/4 rate hike at the next meeting and possibly one more after that! Plan accordingly!
Part II of this story is about future regulation (read my previous post) the federal government is working to put in place on lenders in an attempt to protect homeowners from ill-guided and very riskly loan products; such as a COSI loan or other Negative Amortization loans (this is where unpaid interest gets added onto the principal increasing your total loan balance; NOT a good thing!). Past CNN Story.
While Im not sure what regulation will be be enforced or when it will be introduced, I do know that it's immediate effect will be a negative one on housing strictly due to the limiting of lending options that will now be available to homebuyers. However, in the end it sets a more stable housing environment that will be healthier in terms of long term growth!
~ Fed's Bies warns on mortgage, real estate lending