On January 6, the
Senate confirmed Janet Yellen to head the Federal Reserve’s Board of Governors,
making it the first time ever that a woman has led the nation’s most important
financial institution. In some respects, it makes her the most powerful woman
in the United States.
As with every personnel change in the Fed, Yellen’s rise
has fostered plenty of concerns about the direction the Federal Reserve will
take under her leadership. Since it’s the institution that determines the
federal funds rate—which in turn dictates how much businesses and individuals
pay for their loans—any change in Federal Reserve policy has a significant
impact on our Metairie home loan rates. Sooner
or later, those rates affect just about all of us.
So, what clues do we have about the direction Ms. Yellen
is likely to lean? One came just before the financial crisis. Before the
financial meltdown, Yellen expressed concerned. In 2005 she is quoted as
saying, “Analyses
do indicate that house prices are abnormally high, that there is a
“bubble" element, even accounting for factors that would support high
house prices."
Last year was an excellent
one for Metairie real estate, yet according to the Standard & Poor’s
Case-Shiller Index, national housing prices are still 20% off the peaks set in
2006. Research from real estate website Trulia shows that U.S. housing is still
4% undervalued (compared with a 39% overvaluation
reached at the 2006 peak). Happily, Yellen, an early identifier of the previous
housing bubble, has not expressed similar concerns about today’s real estate
market.
In 2012, the Federal Reserve’s previous leadership announced
an unemployment threshold of 6.5% as the point at which it would consider
raising interest rates. During Yellen’s first testimony as Chairman, she stated
that the Federal open market committee would likely keep interest rates near
zero well past that mark. In Yellen’s view, the “recovery in the labor market is far from complete.” As evidence, Yellen pointed to
7.1 million people who are mired in part time work but who would prefer full
time jobs—and to the 3.6 million people who have been unemployed longer than
six months.
For Metairie home loan
rate watchers concerned that a rise in rates might dent real estate values, the
new Chairman has sounded some reassuring notes. In her recent address to the
Committee on Financial Services, Yellen explicitly stated that she expects “a great deal of continuity in the FOMC’s
approach to monetary policy.” That
could mean that interest rates for local home loans might gradually rise, it’s
not likely to be precipitous.
The bottom line: dramatic rises in interest rates are
unlikely under Yellen’s watch, but those considering getting a home loan who
have not yet taken advantage of still low interest rates might do well to
consider doing so.
Terez Harris NOLA Real Estate Group
(504)297-2619
Keller Williams Realty New Orleans 8601 Leake Ave. New Orleans, LA 70118 504-862-0100
Each office independently owned and operated. All brokers licensed in the state of Louisiana.
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