The Federal Reserve just announced a move that will have a big impact on both home buyers and sellers.
At the latest Fed meeting on September 20th, Fed Chair Janet Yellen announced that the Fed would start to cut back its balance sheet. While that might sound boring compared to the usual announcements of Fed rate hikes, it’s actually a very big deal.
You see, when the financial crisis hit 10 years ago, the Fed needed to take emergency measures, so it injected a huge amount of money into the economy. The Fed did this by buying up various financial assets totaling $3.5 trillion, an enormous sum that made up almost 25% of the entire U.S. economy at the time.
This money helped stabilize various markets and get the economy back on track. However, the Fed is confident that the economy is now doing well enough for it to slowly start taking some of that money back. And that’s exactly what this announcement was all about.
As you can imagine, this is going to have a massive impact throughout the economy, including on real estate. According to experts, it will inevitably put upward pressure on consumer borrowing costs, such as mortgage rates, which have stayed fairly low in spite of the Fed’s actions so far.
In other words, if you are thinking of buying a home, the Fed’s most recent move will eventually make it more expensive for you to do so because you will be paying more in interest. If you are looking to sell your home, this might mean there will be fewer interested buyers, which might drive prices down and might make it harder to sell.
Now, this won’t happen immediately, because the Fed’s balance sheet rollback will be gradual. As a matter of fact, the Fed is only reducing its balance sheet by a mere $10 billion a month to start with—just a drop compared to the $4.5 trillion total.
But make no mistake, while the Fed’s moves will take time to bear fruit, they will drive up interest rates, particularly as the Fed ramps this process up in the coming months.
That’s why if you’ve been thinking of getting into the real estate market, now is such a crucial time.
If you have any questions, whether about buying or selling your home, or about the details of the Fed’s announcement and what they mean for you, give me a call. I’m here to help.