The Fed announced, today that it would reduce the monthly bond purchases by $10 billion in July 2014 to $35 billion. The plan is to end these purchases before the end of 2014. It also affirmed that it is likely to start raising its benchmark interest rate next year.
“Growth in economic activity has rebounded in recent months,” the Fed said in a statement after a two-day meeting of its policy-making Federal Open Market Committee. It said labor markets, household spending and business investment were all improving.
The aggregated forecasts of Fed officials, published Wednesday, showed a small increase in the average expected level of the Fed’s benchmark interest rate at the end of 2015 and 2016. The median for 2015 rose to 1.2 percent from 1.125 percent, but it was not clear that the change reflected a forward creep in the views of Fed officials about the timing of a first rate increase from the level close to zero at which the Fed has maintained the rate since late 2008. The change is slight, and the documents do not indicate whether it is Ms. Yellen and her allies who changed their views.
This is not good news for housing market since the continue hike of interest rates will make more buyers unable to qualify for home mortgages specially under the current climate of depressed and declining wages. Ironically this might only affect the non-cash buyers of homes in Silicon Valley. By our reporting the percentage of cash purchases in the past 90 days in Silicon Valley was 35%.
So, how will the rising climate of interest rate affecting your plans to buy a home in Silicon Valley? Let us know.