With the FED intervention over, what will interest rates do to y - Hawaii News Now - KGMB and KHNL

With the FED intervention over, what will interest rates do to your buyer power?

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HONOLULU (HawaiiNewsNow) -

On Oahu, we are used to factoring in relatively consistent price increases. Since September of 2008, and the beginning of the FED intervention, we haven’t had to think much about home-loan interest rates. We had rates that were low to lower, and as long as the FED intervened, few people thought much about rates.  Today, everything has changed.  

The Federal Reserve, aka The FED, ended all of their intervention in interest rates at the end of 2016.  The big question now is: “What will interest rates do?”

This is an important question because interest rates have the biggest impact on monthly home loan payments – your buying power.  Interest rates are now determined solely by the market, with two important variables to monitor: prices and rates

Home Loan Rates are determined by the “return” on the 10-year Treasury Bond – referred to most often as the “10-year Treasury”.   The 10-year Treasury is a bond, issued by the Federal Reserve, used to raise money for the US Government. 10-year Treasuries are purchased by other Countries, large international banks, and more recently by very large corporations.  Being a bond, the return on the 10-year Treasury is fixed.   The more the bond sells for, the lower the return rate. Home Loan interest rates, your buying power, are “pegged” to this return rate. 

When the demand for the 10-year Treasury is high, the return rate becomes lower.   The higher the sales price of the 10-year Treasury, the lower the home-loan interest rate. The sales price for the 10-year Treasury is determined by demand.  Higher demand means higher sales prices.  Higher sales prices equal lower return rates and that means lower home-loan interest rates.   Providing demand is high for our 10-year Treasuries, interest rates will remain low. If demand falls, interest rates increase. 

From now on, everything has changed: the 10-year Treasury “market” will determine home loan interest rates and consequently, your buying power.

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