What Does It Mean?

The Federal Reserve last week surprised everyone by extending its “exceptionally” low interest rate environment until late 2014.   This is almost a year later than its previous forecast for interest rates.   With many economists saying the economy was improving over the last few months, we have to wonder why the Federal Reserve made this announcement.   At THOR, we think there are two reasons for this decision.  First, the economy is not as rosy as it appears.  Yesterday, the consumer confidence index fell and home prices slipped another 1.3% in November.  The economy also grew less than 2% last year which is well below the average growth rate for an economy rebounding from a recession.   Second, the Federal Reserve is keenly aware of what is happening in Europe.  We believe that the Fed is keeping rates low in order to assist Europe in keeping its rates low – it isn’t helping Portugal whose 5-year rates are now over 20%!  In a worst case scenario in Europe, if Greece and Portugal start a chain reaction that brings down the Euro, the US dollar will become the defacto currency for Europe.  One big question this announcement leaves in our minds is “Does the Federal Reserve know more about an upcoming crisis than they are telling us?”  In our opinion, the Federal Reserve is telling us that our economy has two more years before it starts to turn around.  Not the best sign for our economy.

Time to buy a home?

It was just a few years ago that investors in rental real estate were suffering because people were buying homes instead of renting.  People did this because of the ease in getting a mortgage.  Today, the opposite is true as the only real construction going on is in multi-family units – apartments.  Below is a chart that shows it is now cheaper to buy a home than to rent one.  We still believe that the fall in the housing market has a few months to run.  However, if you or your children are renting, you may want to consider buying a home.  We believe it could be a worthwhile investment over the next five to ten years.

Sincerely,
Your THOR Team