New House Risks and Benefits

Topics: Monetary policy, Federal Reserve System, Central bank Pages: 1 (321 words) Published: April 14, 2013
A New House—Risks and Benefits

There are many different government bodies that can influence the national fiscal policy; but the three I feel are most important are the Federal Reserve System, the Legislative, and the Executive branches. The Fed controls the interest rate which in turn controls the mortgage rate which makes a difference on how much money you have to pay the bank back extra after paying back what was borrowed to purchase the house. The Federal Reserve changing the interest rate also affects the price of the homes for sale as well. The legislative branch makes the rules, regulations, and polices that control the housing department and how strict or lenient the market will be. The executive branch has the power to veto anything that the legislative branch tries to pass so they are the balance to the system.

When the Fed charges banks a higher interest rate, the bank will in turn charge more to borrow money from them as a loaner. The higher the interest rate gets the more money will be spent monthly on payments as well as on the interest of the loan. If the rates are high enough people will wait to purchase a home until the rates are lower. However, if the interest rates are set too low then everyone will be interested in purchasing a new home and a housing bubble can occur.

The mortgage rate for this year has fallen 9 basis points since March 2013 which makes the mortgage rate for a 30 year fixed rate 3.64%. According to Forbes Magazine housing prices have stopped falling and that is a sign that they will begin to rise again. With mortgage rates historically low and the market beginning to bottom out this is probably the best time to purchase without the risk of losing money on the value of your home in the next year or so.
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