The Only Thing We Should Be Looking at When Thinking About Interest Rates

Are you feeling the weight of uncertainty about interest rates? You’re not alone. Many individuals, families, and businesses are navigating the maze of economic forecasts, wondering when or if interest rates will come down. It is daunting but rest assured, we understand your concerns and are here to guide you through.

Imagine this: You want to buy a home in Durango or Bayfield.  You’ve heard whispers of potential interest rate changes, and each fluctuation sends a ripple of anxiety through your financial plans. Will rates come down so we can afford the home of our dreams?  If they don’t come down, am I going to have to rent forever?  What if they don’t come down?  It’s a scenario that resonates with many, highlighting the very real impact interest rates can have on our lives.

Now close your eyes and picture a world where interest rates are stable and predictable. Your mortgage payments remain steady, allowing you to plan for the future with confidence. You can invest in your home, your family, and your dreams without the looming shadow of interest rate uncertainty. This world offers peace of mind, stability, and the freedom to pursue your financial goals without fear.

How do we get there?

We should be ignoring the news and our friends and just use the data that the Federal Reserve has actually given us about rates. Below is the Fed plot from March 2024, showing exactly where Fed Officials believe rates will be in the future. Each Fed Official gets a vote.  So this is the votes of the people that make the rates.  You can’t get any closer to the truth.  Now they can change their mind at any point and it is a moving target but lets see what the graph is telling us.

According to this graph, the Federal Reserve sees themselves lowering interest rates by 0.75% every year for the next few years. However, they aim to do so in a systematic manner, avoiding surprises. What does this mean for you? Rates are expected to come down, but perhaps not as rapidly as desired, and their stance can change at any point.

What are we telling our clients right now? With higher rates, they should be enjoying the returns on their bonds and CD portfolios. As of the time of this post, you can get 5.5% on a CD, offering a remarkable return with low risk. We have not seen that in a long long time. Now that is not investment advice, so call us and we can talk about your unique situation.

However, the downside is that mortgages have become increasingly unaffordable. Nonetheless, we are telling clients if they love the house and can afford the payment now, it’s may be an opportune time to make the purchase. The Fed’s graph indicates future rate reductions, allowing for refinancing in the future, ultimately leading to a payment they will like better for the long term.

If the mortgage payment is currently unmanageable, waiting may be necessary, as the Fed is likely to lower rates over time. But remember, when rates drop, competition from other buyers will increase. Consider seizing the opportunity now while others wait for rates to come down.  Again that is not advice but just how we are thinking about it.

Hope that helps.  Reach out if you want to talk more about this.  We are happy to chat.

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