Cascade Title's Manager Message
When I am out and about making customer calls, I always find it interesting to ask others not only how they are doing, but what their thoughts are on the current market. I hear many different views, but what I am hearing currently is talk about the rising interest rates. In the last few days they have just softened back a nudge, but they are still a bit higher than the record lows we have been experiencing. Now, coming from me, any rate below 6% or 7% is a fantastic deal and never in my wildest dreams did I fathom we would see rates as low as we have seen.. I have been around long enough to remember what the interest rates used to be and when my wife and I purchased our first home back in 1981, we thought 13% was a great deal, and back then, it was! In fact, I remember rates as high as 16% to 17% in the mid 1980's and that is high. Yes, with every tick upwards, it takes someone out of the buying market, or they have to adjust the price level they are shopping, but lenders need to make money too and we all knew that sooner or later they would rise again. I believe it was none other than the quipster of quotes, Will Rogers who said, "Don't wait to buy real estate, buy real estate and wait, they are not making any more"! Those words are as true today as they were when he said it.
Buyers and borrowers will adjust to the rising rates and money will flow, but it is up to us to keep the positive attitudes and convince them the sky is not falling. The main stream media tends to report the downside of issues, but my glass is always half-full and it is still a great time to buy real estate. I came across a great article about this and it reflects just what I am saying. Please take a minute and read this article as reported by the Wall Street Journal and written by Eleanor Blayney: "High Rates Aren't the End of the World":
"Why do investors assume that rising interest rates are nothing but bad news? On June 20 of this year, the market saw its steepest decline in over a year-350 points to the downside-simply because Federal Reserve Chairman Ben Bernanke suggested that the Fed's program of quantitative easing will end at some point. Interest rates jumped on the news, and just about every asset class got punished: stocks, bonds, even precious metals.
Meanwhile, there is Florence, my elderly former client in New York City, who might finally get her wish that the banks would give her something better than almost nothing on her CDs. Plus the fact that some of her higher-yielding muni bonds are less likely to be called now.
The point is that one investor's loss is always another investor's gain. So who, besides Florence, stands on the winning side when interest rates rise? Certainly, holders of cash and short-term lenders: They have the opportunity to reset their holdings at higher rates. Stock investors in companies with low or no debt are also likely to benefit. Then there is the positive correlation relationship between higher U.S. interest rates and the value of the dollar. A rising dollar will generally favor importers of foreign goods and services, as well as net consumers of oil-i.e., the U.S. economy as a whole.
Which brings us back to the whole reason for the rising interest rates in the first place. Mr. Bernanke's announcement that the Fed will ease off monetary easing was based on the observation that the U.S. economy is on the mend and needs less artificial stimulus from the Fed. It was not so long ago that prospect of economic growth, and the resulting increase in employment, would be occasion for a strong market rally.
So perhaps the real winners here are those wise enough (or old enough like Florence) to realize that higher interest rates are not an occasion to dump everything and run, but to selectively profit from a strengthening economy."