The world of homeownership can seem quite complicated to first-time buyers, especially when the buying or rental costs of homes seem to rise almost daily. And it’s the interest rates, especially those set by the Federal Reserve, that are absolutely crucial to understanding the affordability and accessibility of our homes. While we may not live in a country where the Federal Reserve figures prominently, understanding how rate setting works in a global context is crucial to understanding what makes potential homeowners tick.
The Function of Interest Rates
The economy is influenced in a very important way by interest rates, and everything from consumer spending to investment decisions is affected when the Federal Reserve changes them. The life of the average American is touched directly by changes in interest rates because they are the most direct lever the Fed can pull to control either the upswing or the downswing of the business cycle. When rates are lowered, they usually lead to cheaper loans and make life a lot easier for individuals who want to buy a house. When they’re raised, it takes the steam out of the housing market. Understanding the probable direction of future changes in the Fed’s interest rate policy can help you prospectively as a buyer.
The Present Economic Situation
At present, we find ourselves in a phase of economic revival after the disruptions of the pandemic. The breadth of government-imposed measures to foster growth around the world has been impressive. And I must admit, their timing has often seemed serendipitous. Indeed, in some places, they might just be working. This wasn’t so apparent to me a few months back, but my scepticism was countered by more recent narratives of confidence that depict the world in a favourable light. When I step back and look at what’s happening globally through the U.S. lens, it’s much easier to see how a Federal Reserve decision can move not just a U.S. market, but also have ripple effects around many a global housing market. And indeed, that’s part of what seems to be happening these days—driven by a few poor decisions in the past.
One question that arises is, when will the Fed cut rates? This question is not only relevant to the U.S. economy but also carries implications for global markets, including housing affordability in various countries.
Comprehending Inflation
When talking about interest rates, it is also very important to consider inflation. As with everything else, when the rates go up, the purchasing power of money goes down. That is what inflation does. In trying to hold back the rising tide of inflation, the Fed is much more likely to increase rates than to drop them. And when rates go up, it dampens a lot of economic activity, including what may have otherwise been a pretty lively housing market. If you’re just thinking about buying a house, you need to watch inflation and interest rates and the Fed’s likely actions very carefully; they directly affect your possible future mortgage.
Addressing Homelessness
Homelessness is a complex and multifaceted problem that demands a range of strategies to address it. Most people think of homeless individuals as living on the streets, but that is only one version of the tragedy. Indeed, a great many of those who are homeless are staying in temporary shelters; 7,000 in our state between January and March of this year, to be exact. Another recent figure from the last census puts the number of people experiencing homelessness in the state at over 1,000 per night. Our work in the past year with Helping Hands, a nonprofit dedicated to addressing homelessness, and our own research led us to frame the following strategies.
Understanding interest rates and their implications is essential for anyone looking to buy a home. With the global economic landscape constantly shifting, staying informed about rate changes and their potential impacts can empower buyers to make informed decisions in their journey towards homeownership.
