Tuesday, January 9, 2018

The simplicity around interest rates. Two entertaining facts.

As a professional real estate broker who's been in the business of finding people their homes and real estate investments for quite a lot longer than 30 years, people ask me all the time where interest rates are going.  They intend to wait until they're lower before they buy.

Lower.  Than the current 4.00%. 

Let's have some fun with this.  Just two facts for your entertainment. 

1.  The first home I sold in 1984 was to a veteran in Bremerton, WA with a VA loan.  The interest rate on that loan was 18.50%.  Go ahead, laugh.  I'm not kidding.  18.50%.

2.  When the Bank of the United States was created by Alexander Hamilton in 1791, creating for the first time in this country a relatively stable marketplace for mortgage money, interest rates hovered around 7.00%.  Think about it.  The risk of borrowing money in a brand new country with a brand new financial system, no standing army, 97% farmers and the individual states still wanting to print their own money because they didn't trust the country to last.  7.00%. 

How bad do you believe the economy has to get to drive rates lower than 4.00%?

Truth is, the current market is solid and improving.  The Federal Reserve has publicly stated that it intends to raise rates three times in the coming year.  If you're waiting for interest rates to go down, better have a bag lunch.  You may be in line for some time. 

Call me with your questions anytime.  I'd love to talk.

Enjoy the day,
Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com

Monday, January 8, 2018

The Fed cannot just raise interest rates. Here's what really happens.

The Federal Reserve has a duty to the American people to keep inflation under check.  To do that, one of the few tools in its box is to raise the interest rates that banks pay on overnight loans from other big banks. 

Hold on, though.  It can't do that.  This is a free market. 

People think that the Fed just raises interest rates.  We don't think anything of it because that's how the press reports it.  We all think it must just make the decision at its monthly meeting on where rates should be, higher or lower or stay the same, post the new rate on it's website, and everybody has to charge that rate until further notice. 

That is not at all what happens.  This truly is a free market, and interest rates are part of that.

Here's how it works.  If the Fed sees that inflation is becoming or might become a problem because the economy is heating up (meaning we're buying more and corporations are manufacturing and shipping more, and perhaps hiring more people, and maybe even building more factories, etc.), it decides to slow that economy to avoid significant increases in consumer prices.  (After all, that's what inflation is.)  Those corporations borrow money to build those additional factories and hire more people, so they're very sensitive to increases in the costs to make those goods.  The public also decides to buy those products partly on the costs, and if the cost is getting too expensive, the goods stay on the shelves, and therefore the corporations slow production. 

The Fed knows that those companies will slow down a bit if the cost of borrowing money increases, so it does what it can to make that money more expensive.  It does that by deciding to sell less money (Treasuries), which are sold on the auction block on a very scheduled basis.  When there are fewer Treasuries to buy, the price at auction will increase, thereby increasing the cost of money.

Since the Fed has been doing this for the entirety of its existence since 1913, it has a lot of data about how much these decisions will impact those interest rates, and it's gotten very good at it.  It knows from experience how much to restrict the amount of money on the block to effect a 1/4% change.

That said, when you hear that the Fed has raised interest rates 1/4%, that means it has decided to sell a specific amount less than it has been, and the result it intends will be that the banks will pay about 1/4% more.  It may end up being a little less or a bit more, but it will be close.

That's called free market.  So when you hear that the Fed has raised interest rates, don't believe it.  It's actually decided to sell less money, hoping that the effect will be an increase in rates.

Just a fact that you can now use at the next dinner gathering.  We should all be as well educated about these things as we can be.

Meanwhile, if you're thinking about selling your home this year and moving into the home you really want, call me.  We should get together and talk.

Enjoy the day,
Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com 

Friday, January 5, 2018

Before you buy that car, check on your Sales Tax Rate

We all pay taxes, and with the new tax law that was just signed by the President, everybody is talking about them.  Income taxes, state income taxes, estate taxes, capital gains taxes, the new tax brackets, etc.  How will it all affect me?

But everyone ignores another tax that seriously impacts your buying power.  Have you considered comparing your sales taxes to what others in your geography pay?

Sales taxes are levied based on what your immediate community's needs are.  You pay sales taxes when you buy something (hence, the "sales" in sales taxes).  You don't notice it because it's just always there.  A very few dollars when you buy a couple gallons of paint for the living room don't bother you.

But you may visit the hardware store all the time.  It can dribble in over the course of the year, and you don't even think about it.  Sometimes, though, it really hits you.  Have you bought a car lately?  The sales tax on that one purchase isn't just whoop-out money.

So how much do you pay?  It depends on where exactly you live and shop.  If your hardware store is in Boulder, you'll pay Boulder sales taxes.  If you buy somewhere else, you pay the taxes required in that community.

For some larger purchases, the taxes are levied based on where you live.  Car dealerships, for instance, will ask you for your home address so that it can levy the taxes required in your community.  Living in Niwot or unincorporated Boulder County can be a wonderful benefit.

Take a look at the following chart.  Look under the Total Rate near the far right to see what you'll pay.



Now you know what I mean when I say living in Niwot or unincorporated Boulder County is wonderful.  Certainly, you'll never sell your existing home and move just to get a better sales tax rate, but you might appreciate more how the local communities manage their needs.

If you're looking to move at any time this year, call me.  I'd love to sit with you and answer all your questions to help you prepare.

Enjoy the day,

Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile
mmoger@wkre.com