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John Reinhardt Greater Atlanta & Surrounding Suburbs' Blog

By John J. Reinhardt | Agent in Johns Creek, GA

Economic Commentary - John Reinhardt Winterthur Subdivision Sandy Springs GA

 

The Best of Both Worlds?

Right now it looks as though the economy is heating up. The Federal Reserve Board's comments at the conclusion of their meeting contained a more upbeat assessment of the economy. The Dow hit its highest level since 2007 early last week. Car and real estate sales are rising. Oil prices have been climbing all year and interest rates are also starting to climb. As we have said all along, higher gas prices and rates are the price we expect to pay for a stronger economy. The next question is--how high will rates go if the economy keeps improving? In an ideal world, we would have an improving economy all year and still enjoy low rates.

The argument against rates rising too fast starts with the Fed. The Fed has stated that they are committed to keeping short-term rates low until 2014. Keep in mind that this commitment is subject to change if the economy heats up. Plus long-term rates are likely to rise in reaction to a stronger economic recovery despite what the Fed does. So the key will be the economy and we have to remember that there are still plenty of headwinds against a strong recovery. The real estate market must absorb millions of homes which are scheduled to go to foreclosure and the world economy is still slowing in some areas and struggling in other areas such as Europe. A moderate but steady recovery is probably the best we can hope for and this type of recovery could support low rates for the remainder of 2012. Keep in mind that the rates we have seen in the past several months are the lowest of our generation. A small rise in these rates in no way would be considered anything but very attrac tive for consumers to purchase big ticket items such as cars and houses. So as long as the rise in rates and the economic recovery are manageable, we could se e the best of both worlds. After the past several years, this would be very good news.



John Reinhardt

Solid Source Realty

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