The Feds Considering Rate Hike, Is Our Economy Strong Enough?

The Federal Reserve is considering raising interest rates before the end of the year. The ultimate question is, is the U.S. economy strong enough to handle a hike?

A Reuters Poll was taken with 22 economists, and 20 of them said our economy could withstand this hike. Their main support was the amount of jobs created, and the demand for homes for millennials. If their data holds true, how do they factor in the trend of millennials who prefer renting? Most of this generation has outstanding debt, and owning a house is just a dream.

One of the economists has stated, “Rates are very reasonable now, and the signal the Fed will give when they begin raising their key lending rate will push more people into the market.

They have also claimed that the home prices in twenty metropolitan areas would rise an average of 5.0 percent this year.

Expecting a 5 percent increase in home prices will barely be strong enough to raise homeowners’ equity, which in turn will encourage them to put their properties on the market helping to fix the shortage of houses.

They are hoping this increase isn’t going to discourage first time home buyers. For some it will, and for some it won’t.

The next area the economists looked at was rate of home ownership. In the second quarter of 2015, the rate of home ownership fell to a 35 year low, and a rate hike could very well make that number fall further.

With data from last week, a positive number emerged; they found existing home sales rose 5.59 million in July nearing a 9 year high.

The economists have stated they believe all the activity in the market has strengthened itself for this hike. With the labor force rising, and the relaxation of credit conditions, these two factors should help justify the rise in rates.

Those of us watching the clock until the hike will try to lock in low rates, and for a lot of people their crippling student debt will weed them out of the market.

We can probably count on the fact that high rents are making buying a house sound like a good idea, but when the rates increase, rent will sound cheap.               

It sounds like we can barely afford to keep up with the rate increase, so why would we risk going into another recession? If rates do increase, and the housing market turns for the worse, we could all be in pretty big trouble. Let’s hope Uncle Sam doesn’t leave us hanging.  

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