CheckPoint
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.
You May Also Find These Documents Helpful
-
High Federal Funds Rates. HOW DOES THE DISCOUNT RATE AFFECT THE DECISIONS OF BANKS IN SETTING THEIR SPECIFIC INTEREST RATES? Lower Discount Rates: 1. Banks borrow more reserves 2.…
- 320 Words
- 4 Pages
Satisfactory Essays -
Interest rate alone controls who, and who does not go into debt. So financing is usually a supply on demand cycle. Home buyers will find that when interest rates are down, value in homes go up, and when interest rates are up, home value either stays the same or go down.…
- 298 Words
- 2 Pages
Satisfactory Essays -
Interest rate is another factor that has significant impact on demand side of the housing and construction raw materials. Once the interest rate raises, funds available for investment decrease, which means people will be more reluctant to invest in real estates. It would hence result in the shrinkage of housing…
- 2310 Words
- 10 Pages
Powerful Essays -
There are different government bodies that can influence the national fiscal policies, but the Federal Reserves, which determines the increase plus the decrease on the rates of interest, is one of the influences. A preview would be when rates decrease, a lot more money would be put back into the economy. And with more money in the economy, the rates of interest will be trigger down, and may increase the need for the housing market. Another influence is the Federal Tax Benefits and The Treasury Department. The program for the Affordable Home Refinance is for home buyers that have a history payment with Freddie Mac or Sallie Mae.…
- 256 Words
- 1 Page
Good Essays -
The macroeconomic variable that has the greatest impact on interest rates is money supply. If the money supply increases this can cause inflation, and to prevent this, the Federal Reserve raises the interest rate.…
- 695 Words
- 2 Pages
Satisfactory Essays -
The purchase of a home has many benefits in the economy. The way the strength of the economy as a whole can affect the marginal benefits and the marginal costs associated with the purchase of a home are interest rates and home values. If the economy is good the value of homes typically increase, and interest rates will be driven by prime rate which is set by the Feds. When the rate is low people want to buy or refinance, but when the economy is poor there are fewer buyers because there job market is tough and banks will slow down lending by making it tougher for people with credit problems to buy a home.…
- 262 Words
- 2 Pages
Satisfactory Essays -
According to CNN’s article “What a Fed Rate Hike Mean to You,” it informs readers that on Wednesday the key interest is going to rise which will be the second time it has since 2006. This rate hike won’t change drastically but raising the rates affects numerous Americans especially if you have a credit card, a savings account, an investment in stocks or bonds, or wanting to buy a home or car. A rate hike like this indicates that the economy is doing a bit better than eight years ago during the Great Recession. Because of the rate hike, one can earn more interest in a savings account which would be good for those who have a savings account and know how to use it correctly. The mortgage rate has gone up drastically since Trump has been elected…
- 227 Words
- 1 Page
Good Essays -
The first influence is the state of the economy. In a growing economy, people have secures sources of income, and hence have higher confidence and tendencies to borrow money and purchase goods and services. For example, people purchase a car, or house, therefore this increases the demand for funds in an economy. This would therefore increase interest rates, vice versa in a recession economic condition; the interest rates tend to decrease.…
- 325 Words
- 2 Pages
Satisfactory Essays -
Mortgage rates will rise, which is a big deal if you're applying for a new home loan or have a variable-rate mortgage. This could hit first-time buyers especially hard. A one percent interest rate increase can increase the cost of a $100,000 mortgage by over $700 a year. Other loans also will be more expensive, so whether you're financing a new car or carrying a balance on your credit card, it's going to cost more. Rising interest rates may also lead to a decline in home prices, so sellers will want to factor that into their plans. And, as borrowing costs go up, people tend to buy less, which affects businesses in…
- 1897 Words
- 8 Pages
Powerful Essays -
The discount rate is known as the rate of interest the Federal Reserve System (Fed) charges for loans made to banks. The Federal Reserve (Fed) raises or lowers the interest rate it will cause a domino effect. The Fed raising the interest rates, will cause the banks to raise their prime rate; which affects consumer loans, mortgages, auto loans, and business loans. The banks can go to the Fed (central bank) to take loans and borrow money when they are short on reserves. The Fed can increase or decrease the interest rate of the loans to banks. Increasing the interest rate makes it more expensive for banks to borrow money, and discourages banks from borrowing money, and instead contracts the money supply. A decrease in the rate encourages banks to borrow money and increase the money supply. Banks with excess reserves can lend their money overnight to another bank that has a shortage of reserves. The money goes electronically and the in the morning the money is returned including the interest for the day based on the annual percentage rate.…
- 926 Words
- 3 Pages
Better Essays -
The U.S. Federal government is made up of three branches: the executive branch, judicial branch, legislative branch. The executive branch is responsible for enforcing the laws of the U.S., the judicial branch is our court system that decides the meaning of laws and how they are applied and the legislative branch is split into two more branches/houses; The Senate and the House of Representatives. The houses make laws and vote on them in Congress. The Federal government is also responsible for the Federal income tax, Social Security and other Federal controlled programs.…
- 1309 Words
- 6 Pages
Good Essays -
The removal of the tax deduction on mortgage interest will reduce demand for houses since it reduces the benefits which consumers can enjoy with the purchase of a new house. Other economic policies can also consumers’ decisions. For example, when the government increases income tax, consumers will have less disposable income and are thus less willing and able to purchase homes. This reduces demand for houses as well. Alternatively, when government increases government spending by building better infrastructures, it helps to attract investments and promote economic growth. As a result, consumers are more willing and able to purchase new houses and this can result in an increase in demand for houses.…
- 320 Words
- 2 Pages
Satisfactory Essays -
The role of the government individuals who determined the national fiscal policies is to determine whether the amount spent by the government through purchases and taxes will cause these individuals to make changes to government spending and our taxes, which will directly impact our policy and should those designated individual always take into consideration the effects of the changes being made will have on the future of the economy.…
- 537 Words
- 3 Pages
Satisfactory Essays -
Discount rate is another way of saying interest, so in other words the Fed is also in charge of determining the nation’s interest rates. The changing of the discount rate can lead to drastic effects on the economy. When the discount rate is cut, the banks borrow more from the Federal Reserve and obtain more credit to lend out. On the other hand, a raised discount rate will tighten the banks up and they will be less hesitant to borrow money from banks. This is the way that the Federal Reserve functions as a “lender of last resort.” It was by the tactic of lowering the discount rate, did the Federal Reserve try to boost the economy following the September 11 Terrorist Attacks. In fact the Fed actually cut the discount rate eleven times in 2001 (Ginsberg, Lowi and Weir 2009). The raising and lowering of the discount rate is also a tactic that the Fed uses to fight inflation. Raising the discount rate decreases spending and can lead to a recession. To combat the recession, the Fed can lower the discount rate and make bank loans more available. This will raise the spending level and hopefully restore the economy to normal levels. However, an excessive decrease of the discount rate makes too much money available and can lead to inflation. If there is inflation present, raising the discount rate can help to temper spending and end inflation (Brue and McConnell 2005). When inflation was rampant in the…
- 3493 Words
- 14 Pages
Powerful Essays -
Home sales peaked in 2008 in both median price and number of home sales. Following the recession, sale prices fell but has steadily risen since the end of 2012, nearing the early high numbers.…
- 986 Words
- 4 Pages
Good Essays