The Real Estate Encyclopedia
How Do The Fedís Actions Affect My Decision To Buy?
Category - Real Estate Information Sources - General Real Estate Information

The Federal Reserve was created by the U.S. Congress in 1913. Before that, the U.S. lacked any formal organization for studying and implementing monetary policy. As a consequence, markets were often unstable and the public had very little faith in the banking system. The Fed is an independent entity, but is subject to oversight from Congress. Basically, this means that decisions do not have to be ratified by the President or anyone else in the government, but Congress periodically reviews the Fed's activities. 


When the Federal Reserve meets, financial markets eagerly await the Fed's decision on moving or not moving the federal funds rate. For the markets, billions of dollars, complex transactions and giant financial institutions are involved.


But for most of us, the reaction is a lot simpler: What does it mean to me? Will my mortgage rate go up or down? Will I be able to get a cheaper car loan when I replace my clunker? Is my credit card company going to hit me with another rate increase?


For the seller, it is important to follow Fed decisions regarding interest rates because this may drive the real estate market up or down.  When interest rates go up, buyers become more cautious in their decision to buy.  When interest rates fall, buyers will take advantage and market activity typically increases.  Rumors of possible interest rate hikes may drive buyers to buy while interest rates are still affordable.

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