On December 18, 2013 the FOMC announced its plan to decrease monthly purchase of treasury securities (from $45B to $40B) and agency mortgage backed-securities (from $40B to $35B). The committee promised to maintain downward pressure on long term interest rates and keep financial conditions accommodative. Since the announcement equities are up and 10-year treasury rates have hovered around 3.00%.
The importance of low interest rates to the real estate market cannot be overstated. Many of today’s real estate investors are using cash, but rising interest rates will have a profound effect on the borrowing power of future home buyers.
We carried extra cash (often to our frustration) through the fall and our patience was rewarded in December as our focus on long term cash flow made us a natural buyer when other managers were closing their fiscal year. We added several bonds at more attractive prices than we had seen for many months.
Best wishes for a happy and healthy 2014.