WOODWAY,TX — If you're thinking of buying a home, no doubt you keep your eye on home mortgage interest rates.
Sam and Brianna Johnson walk their daughter through their new neighborhood almost every day.
Not long ago, they didn't think they could afford a neighborhood like the one where they now live in Woodway.
"That was actually one of the reasons we decided to buy. When we saw interest rates had just dropped dramatically," said Sam.
That's what banks charge for using their money to do our business. Interest rates are largely set by the United States Government.
It charges a rate banks pay to borrow, from the federal reserve and among each other, before passing it down to the rest of us.
The federal government sets that rate based mostly on what experts believe will most benefit the economy, and turn a profit.
Then there's the law of supply and demand...cheap money, if banks have plenty of it, and as money gets scarce...the fee.
"I think that he would be remiss if he didn't take advantage of it if you need to borrow money, whether it's refinancing your home or for business loans or for whatever right now is definitely the time to execute on that as long as you feel like it works for your budget and you can afford to borrow the money," explained David Littlewood, President, CEO of TFNB Your Bank For Life.
The Johnson's timed the market pretty well, getting a 3.3% mortgage, low enough that their monthly payments allowed them to move to their new neighborhood.
Greg McBride, chief financial analyst at Bankrate says the outlook for home interest rates looks good for 2021.
"Financing is not going to be an impediment in any way in 2021. Rates are already very low. And expected to become even more competitive, particularly as the year goes on and the economic recovery really starts to take hold," he explained.
But what of this talk that a new president, with a new agenda, could trigger a rise in interest rates?
Economist Dr. Ray Perryman of the Perryman Group, calls that prospect "unlikely."
"Historically presidential elections have not made a great deal of difference in the economy. We've studied it over the years. Other people have too and basically over the last 50 or 60 years or so, there's been a slightly higher overall economic growth rate during Democratic administrations," he explained.
Perryman, and others, say the independent Federal Reserve Board, and it's Chairman Janet Yellin, an experienced hand at all things economic, make their decisions without direct input from any administration. Several "buffers" make American monetary policy safe from political influence.
Dr. Perryman says one thing might have a relatively minor impact on interest rates, and it depends on how fast the American economy recovers from the damage done by the COVID pandemic.
"The one sort of indirect effect you might see is if indeed more money is put in the hands of individuals and we do get the recovery going a little bit more rapidly than we might have otherwise. That puts more money into people's hands, they get more confident, more likely to take the step on buying a home, and that can have an impact on on the mortgage market."
In other words, if people rush to buy homes all at once, market forces may take hold and create some inflation, as many people clamor for a limited resource, like a new home.
Littlewood, of TFNB, says he remains watchful over inflation, recalling the mid 1980's when mortgage interest rates jumped to 15% or more.
"I think if you look at what the future holds, inflation is always a significant factor as it relates to interest rates and we haven't seen much inflation in quite some time," he said.
When it comes to the talk about a jump in interest rates during the Biden administration, Littlewood says to him, it sounds like a little "marketing hype."
"The people who are saying that, in the way you just stated it, they're sales folks who are trying to drive business and to build volume to having a month and a good year," he said.
In the meantime, the Johnson's plan in a few years to refinance their mortgage and pocket some more money, paying less to the bank, and more to themselves.
But it's still early, and the turmoil in Washington has captured the Johnson's attention for the moment.
"We're just gonna ride it where we are and see what happens with the world," said Sam.