ATLANTA - Now that the Federal Reserve is no longer printing imaginary dollars to jumpstart the recovery, what’s going to happen to interest rates?
Here to explain exactly what this means to you is Real Estate Expert John Adams.
Question: John, break this down for us. What do we need to know today?
Adams: The Federal Reserve announced Monday that the CORE 12 month INFLATION INDEX for MARCH rose to 2%.
Q: So what?
Well, it’s a big deal if you re an economist!
It means that, on average, Americans paid 2% more for everything than they did one year ago. That’s the first time that has happened since 2012 and it proves the economic engine heating up.
We all know that warming up is good, but overheating is bad - really bad.
And one of the primary purposes of the Federal Reserve is to act like a radiator on that economic engine and keep it running, but not too hot. If it overheats, we get inflation, and that’s really bad for everyone.
Q: So how does the Federal Reserve “cool things off”?
A: By raising interest rates. That draws investments OUT of the stock market and INTO the BOND market. It also makes it harder for borrowers to borrow. And if I can’t get a loan to buy a new house, ten people lose their job for a year.
The good news is this: I’ve been to the mountaintop, and I’ve seen the promised land, and it’s filled with milk and honey. So here are three steps you should take NOW to get ready for the future:
1. ELIMINATE ALL ADJUSTABLE RATE DEBT
- That includes some home mortgages, auto loans, home equity loans, credit card debt, personal and paycheck type loans. Interest rates are on the way up, and now is a great time to lock in a long-term low fixed rate while we still have the chance.
2. MAKE ALL DEBT LONG-TERM and FIXED RATE
- If you own an asset that is paid off or nearly paid off, pull cash out now for as long as you can. I know that there are some so-called experts who scream “I’m debt free,” but that’s not smart in an environment of rising rates. Put excess cash to work paying you MORE than it is costing you in interest. In the long run, you win big.
3. GET OUT OF CASH & INTO REAL ESTATE
- Diversify your retirement into real estate. If you’ve got cash sitting in your retirement fund paying you close to zero, it’s time to get it working for you. You can now buy rental houses inside your 401(k) or IRA, and real estate has always served as an excellent hedge against inflation.
Q: And if the viewer is a millennial trying to decide whether to buy a first house?
A: Watch GDA until 10 a.m., then turn off the television and go buy a house today. Try to find a house that the average American family will want to live in, in an area with good schools. I can almost guarantee you that buying a home today will be one of the best investments you ever make.
As inflation works on our economy for the next few years, your home will rise in value along with the interest rates.
Meanwhile, you aren’t paying rent! Instead, you are PAYING OFF your loan!!