As steady readers of this blog, you probably have read one of the many posts that I have written about rising interest rates. If you haven’t, you can read them by going to www.55PlusInOcean.com or www.55PlusinMonmouth.com. The posts mostly are centered on the fact that the Federal Reserve has raised interest rates. And they have stated that they will continue to raise rates.
But I’m not writing today to rehash that subject. I’m here to tell you why the bond market will cause rates to rise.
I realize that many of you are scratching your heads right about now. What is the bond market? Well, I did not know much about the bond market myself earlier today. So I did some research. Here is what I have learned.
In order to help boost economic growth after the financial crisis that occurred in 2008, central banks throughout the world started to buy bonds. And they bought a lot of bonds. As they continued to buy bonds, the added demand caused the yields on bonds to decrease. And this meant that mortgage interest rates decreased.
Then, in 2013, the Federal Reserve said they may stop their bond purchase plan. And this caused bond yields to increase. Then, recently, the European Central Bank also announced they would reduce their bond purchase plan. And this increased yields even more.
Now the government is working on a new tax plan. And investors see the new tax plan as a negative in regards to mortgage rates. But the new tax plan will hopefully provide a boost for economic growth. And this could cause inflation. And it could increase the bond yield even more. Which would raise interest rates even more.
So what does this mean for the real estate market? If you are thinking of buying a new home, do it now. Rates will probably increase the longer you delay.
Bunny and Art Reiman are Realtors, not financial advisers. If you read this post, you know as much as I do about bonds. Maybe more. So do not call me with questions about bonds. But if you have a real estate question, I can be reached at 732-598-7700
