When interest rates go up. Pleasanton/Dublin/Fremont/Hayward Real Estate

We all hear that interest rates are the lowest in 58 years. Interest rates are so low right now for a few reasons.

1) our government is making it extremely cheap for banks to borrower money
2) our governement is also buying the mortgage back securties which are the loans that banks make, sell them to Fannie and Freddie, who than sells them on the open market

Here is how Interest Rates will start to increase:

Our governement will stop buying these mortgage backed securties at the end of March. Big question is who will buy them? If no one will buy them than we have Econ 101; lots of supply but no demand thus pushing the price of bonds down causing the banks to increase interest rates on the next set of loan that are made. Why....to make the yields on these bonds higher so the market looks at them more favorably to purchase as well as to make up the loses on the ones that were sold at a much lower price. This also will help pull back some of the supply thus creating a demand as less loans will be made.

There has been a tremendous amount of money flooded into our economy by the Fed to help stimulate the economy. At some point those monies need to be pulled in to help increase the value of the dollar which makes it look like a better investment as well as reduce the amount that is in the market. This happens with inflation as well as when the FED starts to increase the cost of money borrowing between banks.

How do your reduce the flow of money....increase interest rates...

What payment would you like:

$417K house with 3.5% down - payment: $2,129.56
or
$417K house with 3.5% down - payment: $2,284,81

That is a difference of $155

Here is what happens by the end of the year:
$417K house with 3.5% down - payment: $2,412.62

Why would you wait! Rates at 4.875% on a 30 year FHA loan today....tomorrow rates by the end of the year... probably 6%.