Shouldn't the Federal Reserve raise interest rates?
There are a number of things that can be done to help reduce excessive speculation by hedge funds who use paper trades to force up commodity prices despite these market speculators not having any storage units to house oil, gas,grains, for example. If you don't own or employ any long term leases for storage, include the cost of storage and maintenance for these various type of units. Like real estate mortgage, rent, leasing, maintenance, etc, short term traders cost of speculating comes too easy with regards to jumping in and out of fickle trades. Increase margin requirements on a daily basis and see how secure traders feel about the longer term of holding on to nickle, iron ore, pork bellies, etc. Trade pork bellies and traders should be chopping up the stuff in their trader garbs and going home all smelly and slimy. You trade it, then pay for the barrels and the freezer and moving costs. The fed can still lower rates and still see deflation from the housing markets. Look at Japan with the lowest interest rates around. Deflation galore. Find a way for "traders" to face more responsibility in their ability to manipulate markets. Owing to the "Globalization" of markets however, each country may have different rules for trading. Traders hate regulation for themselves, but they love it for me and you.
Why is it that every time the Fed raises the interest rate, it makes the house market prices go up?
Actually, the Fed drives the discount rate, which ultimately affects all the other rates in the economy. These various rates can be thought of as your cost of money for various purposes. if the cost of money for people buying houses goes up, what ought to happen is housing prices should fall— or slow down in rising—because higher cost of borrowing money for housing should mean fewer people can afford houses.In reality a lot of things interact. Economic activity changes as rates change and peoples expectations and imaginations screw up their judgment. People do foolish things like get variable rate mortgages with payments they can just about service at low rates but can’t manage when rates change.If you are one of these people, you are fooling yourself about buying a home. Really you are just more or less renting from the bank (or these days, from the bondholders). So in that case the price of your housing does in fact go up.
Are house prices going to drop when interest rates raise?
That’s the million dollar question. Literally.People want to know if they should spend a million dollars on a home now, or wait for the results of higher interest rates.Technically speaking, higher interest rates cause lower housing prices. If it costs more money to borrow money, then the costs of homes decrease because no one can afford to borrow lots of money!If rates were to spike to 1980s levels (mid-teens), then the housing market would be crushed, in price terms.Now, this is what would happen in terms of numerical reasoning.When interest rates eventually rise, it may not be by that much at first. For a home buyer a change in an interest rate by .25% is not drastic.So, if we do see interest rates rise in the short term, the housing market could actually increase in price. This is because buyers may think that their opportunity to ‘lock themselves into a fixed low rate mortgage’ is disappearing.If buyers get the feeling that they are about to miss out on an opportunity to get a low rate, the housing market could get bid higher as buyers frantically try to buy a house.This is simple supply and demand market theory.Now, with all of that in mind, there are other factors to consider.One very important concept to understand is nominal interest rates versus real interest rates. This essentially is the difference between interest rates and inflation.Back to the 1980s example… The actual cost of borrowing money in the ‘80s was very similar to now. That’s because inflation was very high during the ‘80s.Right now in 2016, inflation is low which means that our low rates create the same borrowing cost as in the 1980s.Finally, there are many other complicated issues to consider when factoring rising interest rates with home prices. This would include specific housing markets (SF Bay area vs. Middle America), lending policies (amount required down, etc.), and supply of homes on the market.I write several times a week about topics like this. Only time will tell what will ultimately happen, but if we keep a close eye and understand what is happening, then we can position ourselves well to profit from this situation.
What does it mean when FED will raise/reduce interest rates?
sorry no space but... what does it mean when FED will raise/reduce interest rates how does it affect my parents who have a small business and want to purchase a new home. Does this affect me (soon to be college student)
Should I buy a house now or wait until I have more money?
Good answers above, so I'll add a specific suggestion related to your concern about buying now vs. late in 2015. When evaluating two similar courses of action like this, the financial difference between them is not that hard to quantify (at least as a range). Pick a conservative higher-interest rate figure, like 5% as Kathleen Grace suggested, and run the numbers. The difference in monthly payment and lifetime loan cost between what you can get now vs. at 5% may not be that huge, particularly if home prices stay flat, or even come down because of seasonal variation in home sales (Winter sellers may be desperate to sell, and deals can be more likely than in Spring). Whatever that cost increase is, consider it as a cost that you could choose to pay in exchange for the (potential) value of waiting: flexibility, better analysis of affordability, whatever. The question of whether that cost will be worth it to you is entirely individual to you. So it's probably best to consult an experienced Realtor in your area, particularly since they'll have a good handle on the seasonal market variation in the specific area(s) that you'd like to buy. Good luck!