esquire - an increase in the int rate by the fed leads to higher interest rates on loans, and has a large impact on home loans (and of course, auto loans). Generally, the housing market experiences the quickest, and sometimes greatest, impact from rising interest rates. This is the reason the Fed keeps an eye on the new housing index in relation to its interest policies. Everything is a fine balance in the American (and world) economy, and the housing indexes are considered a good indicator of the effectiveness of the current policy (on the short-term). If the housing markets experience strong growth (especially at a rate like +0.18), then the Fed will generally increase the interest rate (way overgeneralized statement here, I know), and continue until they see "stability" in the housing index. I'm leaving out some pretty crucial data here, but if I were to go into all the factors governing Fed policy, it would require a few hundred pages at least. The simplest way to put it is that when the Fed raises the interest rate, one of their goals is to stabilize the housing market (and discourage consumer debt spending). The general idea is to keep growth at a fairly fixed or stable rate, and prevent steep drops or climbs (unless that is the stated goal they are trying to achieve). So, drizz hits it pretty dead on when he states that rising interest rates should stabilize housing prices and prevent further "bubble". However, I've read some statements lately (I think it was the Philly Fed chairman) stating a concern about a UM study showing average household debt exceeding 400% of annual income, and what some view as a dangerous bubble trend in some major housing markets, and a consumer overspending trend that does not appear to be reacting to previous policies. If this is the case, many are asking: will we see an aggressive move by the Fed and a possible split from its stated policy regarding slow increase in the interest rate, in order to deter further debt spending and reduce the trade deficit (and strengthen the dollar, since Bush and Co. seem so obsessed with that lately)? If so, that would definitely have an impact on housing (at least on new housing and development), and might even cause a decrease in housing values. Anyway... I liked the HUD idea. I am going to investigate that immediately. There is a low-income area here in Seattle (the CD) that is somewhat like the SC-area of LA, and is becoming slowly gentrified, but yet still is fairly affordable, and near the heart of the urban center. I could see values increasing greatly in this area over the next 10 years, and to think that HUD assistance would cover even a portion of the cost of investment makes that a very interesting option. I had never thought of such a thing. Thanks for the input drizz. And if you are ever up here in Seattle (I am coming down to LA in a few months on business), I would love to treat you to a steak dinner or a good single-malt scotch or something. It'd be great to pick your brain for a few minutes, as most of the investors I work with view real estate as too low-growth to mess with, and so I rarely get good advice on it. Food and shelter are necessities (like health care), so I think they make great investments over the long-haul obviously.
post #106 of 157
2/5/05 at 6:36pm