With the imminent raising of interest rates by the Federal Reserve later today, I felt compelled to weigh in with my thoughts prior to their actions, so that I am not confused with those housing industry observers, pundits, analysts, and others, who will be more comfortable commenting after Yellen and her crew do the deed... finally.
Because the Fed waited too long to raise rates, hoping (wishing almost) that a “real” economic recovery was in play, which it absolutely, indisputably has not, they boxed themselves into a corner to have to raise rates now. This is despite growing concerns that they are doing so when many economic indicators reveal that the economy not only has not been in recovery, it is on the verge of another recession -- even as we never really came out of the last one. Not news here.
To repeat once again, the only beneficiaries from zero or near-zero overnight interest rates during the tenure of the disastrous Obama Administration have been those working on Wall Street, those connected and investing on Wall Street, and those of the ruling class in America (kind of redundant, don’t you think?).
Many economists believe strongly that the lack of liquidity caused by over-regulation and the strangulation of businesses, especially small businesses, coupled with rising interest rates will further squeeze the American economy.
And this, at a time when ObamaCare, the Consumer Financial Protection Bureau, and so many other heavy-handed government interventionism is intertwining with global threats to national and financial security to make the coming “New Year” one of the least happily anticipated in many, many years.
The housing sector cannot become resurgent, and therefore lead economic growth in this nation, as it has for many decades, until the meaningful creation of job growth begins once again. This is not rocket science.
Nor is it deniable that rising interest rates will cause additional stress and increased angst for those wanting to purchase a car, have credit cards, or seek credit purchases of many different kinds. People of many stripes will be impacted, especially because wages have not, and mostly will not for the foreseeable future, keep pace with rising costs.
With over 93 million mostly able Americans not working or no longer seeking employment because of the misguided (or worse) decisions of those who “serve” us in Washington, which has eliminated millions of full-time jobs, threatened small businesses (especially community banks) with extinction, ruined the once world-renowned healthcare system available only in America (even to those who are illegal aliens or unable to pay for service), the Fed’s actions will only exacerbate an already serious economic situation.
While a quarter-point rise in interest rates does not spell doom and gloom with respect to the housing sector, it is unlikely in the extreme that rates will only rise by small measures over time. Indeed, many economists believe rates will go up by at least 1% in the coming year alone. And each increase of, say, 1% in mortgage rates will increase monthly payment on HELOCs and adjustable rate mortgages by as much as 12%, according to real estate professionals with whom I have spoken on this topic.
In addition, each quarter-point rise in mortgage rates pushes potential borrowers out of qualification for a loan. This will impact origination for first-time-buyers and anyone hoping to “move up.” This will negatively impact not only the housing sector, but will further hurt our fragile economy.
Any person, pundit, housing industry or mortgage industry-related “executive” who spins any other point of view in this regard (although they most assuredly have every right to do so), in my humble opinion, stands to benefit from said spin.
Growing interference in the private sector by government, heavy-handed regulatory overreach, or other misguided actions of many entities connected with this Administration, and the failed monetary policies of the interconnected Federal Reserve, will most certainly continue to stifle economic growth and prosperity in America.
If only it were not so.