![]() ![]() The real estate market currently looks troubling. The buyer market looks like it will get smaller. If the Federal Reserve lowers interest rates in a similar fashion in 1-2 years, it can present tremendous buying opportunities for investors who save up now. While record-high inflation makes this less likely, inflation was a big concern in 2006 and resulted in the 5.25% Fed Funds Rate back then. The economy can find itself in a similar situation next year and prompt the Fed to take decisive action. The linked article is an ominous trip through time that shows how much history can repeat itself.ĭuring the Great Recession, the Fed cited a poor job market and lackluster economy to lower the borrowing costs for companies and homeowners. The Federal Reserve lowered its rate from 5.25% to 0% in 2008. While this may sound strange, with current narratives implying a higher interest rate, history tends to rhyme. A lower inflation rate can give the Federal Reserve more flexibility to lower interest rates during a crash. In June, inflation fell to 3% and has been declining for a year. Inflation is getting closer to the Federal Reserve’s 2% target. The Federal Reserve Might Cut Rates to Near Zero During the Crash However, with few things going right for the current real estate market, it’s not a welcoming sign for investors. The interest rate hikes won’t be as dramatic as what consumers experienced in 2022. A decline in credit scores due to the resumption of student loan payments can further complicate interest rates. Property prices tend to fall as interest rates go up since mortgages become more expensive. Any additional rate hikes will increase the cost of borrowing money and make real estate properties less desirable. One year ago, the Fed Funds Rate was 1.75%. The one-year change in the Fed rate is extraordinary. ![]() The Fed is likely to raise interest rates this month and possibly an additional time in 2023. ![]() While interest rates haven’t accelerated as much in 2023, they are still going up. The Federal Reserve stole headlines in 2022 each time the central bank announced interest rate hikes. The Federal Reserve Is Not Done with Interest Rate Hikes ![]() That outcome can result in fewer buyers and force sellers to lower their prices. If companies do not make as much revenue, they may have to make cuts to protect profits. While this may sound like a problem that only affects borrowers with student loans, the decrease in consumer spending can impact jobs. Inflation, as measured by the consumer price index, has been decelerating, but prices still remain elevated from when borrowers paid their student loans in 2020. It became easier to make on-time payments for other expenses.Ī Federal Reserve Note from 2022 revealed that almost 60% of borrowers did not make a single payment toward their student debt during the pause. The temporary student loan pause inflated consumers’ credit scores by giving them one less debt to cover. The return of student loan payments can also negatively impact people’s credit scores. A declining buyer base gives sellers less control over pricing negotiations and can force a downward movement in housing prices. The extra financial burden can reduce the number of buyers in the real estate market. Source: Brian A Jackson / Īs approximately 43.5 million people pay for federal or private student loans, student loan payments resuming after August and will impact the economy. ![]()
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