 If you’ve been thinking about buying your first home or making the leap to that vacation or dream home you’ve always wanted—there isn’t a better time to buy than right now. From a financial standpoint, the Federal Reserve recently cut interest rates once again nearly half a percentage point, bringing them to their lowest level since 1962.
The Fed lowered its target for the federal funds rate on overnight loans among banks to 2.5%, from 3%. And, in response to the Fed’s rate cuts, a number of banking companies including Bank of America, J.P. Morgan Chase, Bank One, Fleet Boston Financial and Wells Fargo reduced their prime lending rates for their most credit-worthy customers to 5.5%, from 6%.
There’s no doubt that consumer confidence has diminished and understandably so since the terrorist attacks on Sept. 11, and more people are putting off big purchases and big plans. But the reality is that rate cuts like the ones that have happened recently are just too good to pass up. Take this and combine it with the power of the federal government that is backing this financial windfall, and it’s a win-win situation for savvy consumers. According to a statement by the Federal Reserve, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.
And many consumers are taking advantage of the situation. For example, Jeff and Michelle Smith are expecting their first child early next year. Michelle has a home-based business and also works part-time; Jeff works for a large manufacturing company.
We’ve been thinking about buying a bigger house for the last few months, especially with a baby on the way and the need for more space becoming more important to us, says Michelle. We were going to wait a year or two, but with the interest rates this low, it’s definitely on the radar.
Their situation could be familiar. Michelle’s graphic and web design business has been profitable for more than a year, and Jeff says he feels secure in his position. They’ve also been diligent about saving money each month and have amassed enough to afford a reasonable down payment on a house. Their current house is in a desirable neighborhood, and their Realtor has told them they could get a good price for it if they ever decided to sell.
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With all those factors in our favor, why not? reasons Jeff. Because the rates are so low right now, the house we might not have been able to afford a year ago is now in our budget. For us, it’s more a matter of selling our house that’s the biggest hurdle.
The housing market
Those in the housing industry also have high hopes. According to mortgage finance company Fannie Mae, the U.S. housing market will remain strong because of low interest rates and healthy demand. In a recent study, the company found that home sales and building were at record or near-record levels. They also expect that low interest rates the 30 year-fixed rate mortgage was recently at a national average of 6.72% and will be even lower with the recent rate cuts will encourage a refinancing boom.
What does this mean for those trying to sell their homes in Texas to prepare for moving into their dream home? Though sales of existing homes are expected to fall somewhat, again, the very attractive rates should spur more consumers to buy.
According to recent figures from the Real Estate Center at Texas A&M University in College Station, homes took an average of 5.3 months to sell in August 2001, as compared to 4.7 months in August 2000. Of course, timeframes will vary from county to county and will depend on factors such as neighborhood location, desirability, and others. So, while it might take a little time to sell, patience is definitely a virtue in terms of financial gain in this market.
No matter which option you choose, purchasing your first house or upgrading to the next one simply makes good financial sense to investigateespecially when market forces are at work to help out. Investing in our future and our economy is just one way we as consumers can show the pride that comes from living in America.
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