The month of May has already come and gone. Now the summer real estate market is here. Or is it? Typically, spring and summer are peak seasons for real estate sales, as consumers are focused on purchasing a home prior to the start of the new school year. That being said, this market has been anything but typical.

It appears the recent homebuyer tax credit, combined with low mortgage rates and increased consumer confidence spurred more pending sales in February, March and April then initially expected. The spring market came early this year and the first quarter was bustling with activity, but there has no doubt been a decrease in momentum. Much of this can be attributed to the expiration of the homebuyer tax credit, combined with soaring unemployment rates and the question of whether we can expect an increase in interest rates or inflation.

There has been growing debate among Federal Reserve Members on raising the Fed Fund Rate and what this will potentially mean for home loans. The Fed Fund Rate is a base rate that banks charge each other, which other banks and lending institutions will base their rates on for business and consumer loans. If the rate is increased, so will the cost of borrowing and purchasing a loan. Increasing the Fed Fund Rate tends to slow economic activity, where lowering interest rates tends to spur activity in the market place and create a ripple effect into other sectors of the economy.

According to one of our trusted mortgage advisors, "The Fed Fund Rate is currently at a range of 0.0-0.25%, and it has been this low for over a year to help stimulate our economy and move us from recession to recovery." (The Mortgage Planners Update) The present concern is that if the Fed Fund Rate increases, we could be faced with a decrease in economic activity and a possible "double dip" recession. On the other hand, if the Fed waits too long to increase rates then inflation could be the result, which can negatively impact the bond markets and home loans. There are many moving parts for the Fed to consider in the upcoming months such as unemployment, mounting US debt, and shaking markets in Europe. Interestingly enough, bonds and home loan rates have benefited slightly from the situation in Europe, as global investors are finding more security in US Bonds.

According to the Associated Press, "Stocks climbed this past Wednesday after Federal Reserve Chairman Ben Bernanke said debt problems in Europe might only amount to a "modest" drag on the U.S. economy if the financial markets can halt their slide. Bernanke's comments came in testimony to the House Budget Committee. He said the economy is still recovering but that jobs and housing are likely to remain weak." (Stephen Bernardo, Associated Press). Bernanke stated , "the Unemployment Rate is likely to remain high for a while and the Fed can't wait until unemployment is where we'd like it to be before tightening credit, or inflation could too easily get out of control".

It appears we still have a long road ahead towards reaching economic recovery and the debate will continue to unfold as the Fed is scheduled to meet this upcoming week. Stay tuned to our blog www.LakeHodgestoLakePowayHomes.com for further updates on this topic. In the meantime, please keep us in mind for all your real estate needs and referrals.