Finally, after much anticipation, the Fed announced last Wednesday that they would begin tapering the governments purchases of treasuries and mortgage backed securities. And when they say taper, they mean a slight taper. The purchases are set to go from $85 billion to $75 billion per month. Although it is not a huge change, the stock market clearly interpreted the move as a vote of confidence for the US economy and ended on a record high.
So what does this mean to the consumer?
Chairman (for a few more days) Ben Bernanke also shared during his announcement Wednesday that rates would not go up until 2015. That is almost comical. Especially considering that rates jumped up 3/4 percent right before the announcement. Almost as if the markets were anticipating the taper. Now will we see a huge jump in rates in 2014? Probably not. But will rates go up? Most experts say “yes.”
I have shared before that on average for every 1 percent that rates increase, a buyer will lose 10 percent of his or her buying power. So let’s not underestimate even a 3/4 point jump. Every little bit counts. Therefore, if a home purchase is on your calendar for 2014, perhaps you should start sooner than you think. You will have less buyer competition in January than in April.
On a side note, housing starts in November were up 22.7 percent — much higher than expected. It was also the highest level for starts in more than five years. It is great to see new construction moving along at such a pace. Housing starts are typically one of the last signs of a true housing recovery.
For you sellers out there, fast-paced new construction means two things: more competition and a higher standard of updates. As these new homes are popping up in all directions, buyers will have more options. Some buyers will choose new over resale. And some may still choose resale but will be exposed to all of the newest trends in decor and finish work. New construction always sets the bar for the resale market. Granite counter tops were unheard of in the resale market until they became commonplace in the new home communities. So resale sellers beware. Your buyer pool might be reduced by this new competition or at least raise the bar for housing updates and what today’s buyer will come to expect.
Overall, I am very encouraged by our market conditions right now. 2014 looks to be an exciting year in real estate and we are looking forward to sharing more information with you in the new year. As always, thank you for supporting the PV Post and our column. If you have any topics that you would like to see discussed in 2014, please email me.
The Taylor-Made Team wishes you all a very Happy New Year!
Photo Credit: LendingMemo on Flickr.com