A Not-So-Scary End to QE3

By Ryan Dosen

 

This morning I will no doubt have a battle on my hands. The battle is a yearly one. And it tends to get messy. Chocolate, after all, does melt pretty easily.

My boys, armed with light sabers and an inexhaustible supply of energy, will have no doubt returned from last night’s escapades with a mixed bag of the finest goodies Chester County’s residents have to offer. The war I will wage will be with the young Jedis and myself. I need to make sure we all avoid consuming too much sugar and that we keep the candy casualties to a minimum.

Fortunately, consuming a bit of tasty real estate news doesn’t come with a high calorie count or sugar crash.

 

Fed ends bond buying

The big news of the week is that the Federal Reserve has decided to terminate its bond buying program, also known as QE3. Last December, the Fed started tapering its monthly creation of billions of dollars for the purpose of buying US Treasuries and mortgage bonds. $85 billion dollars in monthly purchases has gradually and steadily dwindled since late last year and the printing presses are finally stopping.

With its easing program, the Fed had hoped to decrease long-term interest rates and boost job and economic growth. Skeptics of QE3 feared that the mass creation of money and the slashing of interest rates could feed bubbles or produce rampant inflation.

Historically speaking, interest rates are certainly very low. The unemployment picture is looking much better as well. According the Bureau of Labor Statistics, unemployment peaked in October of 2009 at 10 percent; that number just fell below 6 percent to 5.9 percent for the first time since August of 2008.

Inflation is also supposedly in check at around 1.7 percent. Core inflation, the number cited by most experts when analyzing inflation, is calculated by taking the Consumer Price Index (CPI) and disregarding certain “volatile” goods, including energy (gas) and food. Supposedly, these “volatile” numbers can inaccurately skew the inflation data, and they are therefore disregarded. Some (read: Some experts and I) argue that any inflation data that does not consider the cost of food and gas simply does not reflect the true power of the dollar. Gas prices were down well below $2.00 per gallon in 2008. It is certainly convenient that our “in check” core inflation numbers are disregarding certain categories of goods (like food and energy) that have seen large price increases in the recent past. Nevertheless, we are being told that inflation is not a concern and that QE3 did not have the feared effect on the value and power of the dollar.

Hopefully the easing programs have had their desired positive effects without inducing any of the feared long-term repercussions. The good news for the housing market is that it would seem that the Fed is satisfied with its outlook and the likelihood that the market will continue to improve. The potentially bad news is that rate hikes may not be in the too-distant future.

 

Scary stuff

In a bit of completely unrelated, but interesting Halloween real estate news, Bran Castle is for sale. Legend has it that Bran Castle, located in the mountains of Romania (formerly Transylvania), was home to Count Dracula. The castle, which is a major tourist attraction, has been restored and is available to all of you that have $78 million USD to spare.

Haunted houses and vampires aren’t really my thing; I’m much more scared by things like gas prices climbing back over $3 per gallon or interest rates climbing back over 4 percent (Freddie Mac reported on Thursday that the nationwide average for a 30-year mortgage rose from 3.92 percent to 3.98 percent last week). I can’t be sure about the gas, but interest rates will climb at some point. Fed policymakers had previously indicated that the Fed might raise its benchmark interest rate in mid-2015. Don’t be frightened, but it’s almost 2015.

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan Dosen for buyer or seller representation or for more perspective on the local and national real estate market by emailing rdosen@megillhomes.com or calling 610-399-0338. Please also visit The Wayne Megill Team blog at www.PAHomesAndRealEstate.com.

 

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

 

 

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.