Hot Stock Market
The DOW is up over 14,000. Not really news, it has been hitting highs for several weeks. Check your 401K or portfolio manager and you will see your bottom line is doing pretty well these days. House values are climbing simultaneously. Boulder is experiencing a Flash Market. The Case Shiller index predicts values will trend up in several major metropolitan markets this year; including Denver/Boulder.
Low Interest Rates
Buyers can finance a mortgage for around 3.5% these days. That is incredibly inexpensive money. As a result of such low rates, a number of investor buyers are flooding into the market, aware they can cover their payments with sky high rents. Concurrently renters tiring of exorbitant rates are looking to purchase a home and save money on a monthly basis.
Low Interest Rates Hot Stock Market
Historically (just a few years back in 2007), the stock market closed above 14,000. And when it did so, money rushed out of the bond market and into the stock market. In a normal economy, when the stock market is hot, bond prices fall because everyone is selling bonds to buy stocks which are going up. And when bond prices fall, interest rates go up.
And why isn’t this happening right now? Our friends at the US Federal Reserve are intervening. This government entity is purchasing massive amounts of bonds – $83 Billion dollars worth – each and every month.
Fed intervention is resulting in a bond market that is stable with low interest rates and a stock market that is hot, over 14,000 and a US middle class that is able to afford a good home in hot real estate markets.
Since everyone is always saying, “History repeats itself” – at least, my parents always said this sort of thing to me growing up – American home buyers should be aware that when the Fed stops purchasing $83 Billion dollars of bonds a month, interest rates are going to quickly jump up in a big way. And when this occurs, the amount of home you can purchase will suddenly decline. Or your payment will explode upwards.
Don’t miss the opportunity. Take advantage of super low interest rates that are historically unlikely to be around when the market evens out. My 2 cents aka the bottom line: buy now before interest rates take off.