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The Impact of the Fiscal Cliff on Interest Rates

Orange County, CA – We can be thankful that the upheaval of the election is now behind us. In terms of finances, no one likes the uncertainty of a national election, especially Wall Street. But that doesn’t mean that it’s going to be clear sailing from this point on. Financial experts in the market strongly feel that all markets will now be driven by the Fiscal cliff that is approaching. Political up and downs are likely until the D-Day of December 31st. But the likelihood is that we’ll have a decrease in interest rates from now until then. Though people are unsure of what is to follow.

We may have a couple of months of worry in store for us. But it has to be said that the economy in recent months has been doggedly improving. There’s no doubt that there is a slight upturn in spite of everything, and in some areas, we’re seeing significant increase in property transactions.

Of course, foremost in the minds of people who are looking to the markets is the Fiscal Cliff. There has been a post election slide in the stock market.  This stems from the uncertainty about what is forthcoming. Uncertainty favors bonds not stocks. Therefore, the bond markets have been improving…and that helps to lower interest rates. Most experts are suggesting that the least we’ll see is the payroll tax cut expiring. It’s also widely believed that the upper level of income tax will increase.

So what does all of this mean for anyone looking to borrow for a potential property purchase? Simply that it’s a wait and see situation. If nothing is resolved then we will see lower interest rates. We may see the 10 Year Treasury bond drop to 1.50. The overall likelihood is that this will be short lived because the national and international impact and uproar will be huge. Therefore, the Fiscal Cliff should generate some short term improvements in rates before bouncing back up. There are as many positive indicators as there are negative at the moment and they are likely to equal each other out. There is still a genuine feeling of positivity in the market place. In addition, there’s a belief that several months into next year we are likely to see additional growth. With the election behind us, a stable country and the Fiscal Cliff nothing but a memory, we should be able to look forward to positive times in the housing market.

Scott Storace

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