Fed Lowers Interest Rate, Again
As expected the Federal Reserve Bank today lowered their benchmark interest rate by a quarter point to 4.50 percent. As they did last month the Fed issued a statement saying in part that the goal of this rate cut was to "...promote moderate growth over time."
Many desperate sellers have looked towards Fed rate cuts as the answer to their problems and it is true that the lower the interest rates the more a borrower can afford to borrow. If they choose to.
However before the market can be brought back into balance, the current huge glut in inventory will have to be worked through. Nationwide sales of existing homes have dropped 30 percent since the market peaked in 2005 and the supply of unsold homes is at its highest level in 19 years. Locally, here in mid coast Maine it is estimated that we have 3 years worth of inventory on the market. This will act as a discounting mechanism on the market and in fact that is already being seen. Most of the homes that have sold this year have gone for prices 10% to 20% lower than they would have in 2005.
There is cause for optimism though. This morning the Commerce Department reported that the nations Gross Domestic Product expanded at a very healthy 3.9% in the third quarter. Consumer spending rose 3% and the unemployment rate has held steady at a low 4.7%.
Savvy investors will find good deals in todays market. A few years from now some people will be telling stories about what a low price they could have bought a particular property for in '07-'08. Others will be talking about the profit they made on the property they bought in '07-'08.
Comments