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U S Interest Rates Likely To Hit 6.5% This Year

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More could be priced out of local housing market

By Mike Freeman


March 10, 2006

Rates for 30-year mortgages rose this week to their highest level in more than two years, thanks to inflation fears and foreign investors pulling money out of U.S. Treasuries.
The higher rates could lead to a further cooling of the housing market – which has slowed significantly in San Diego County during the past nine months.
Higher rates mean more buyers could be priced out of the region's already expensive housing market. The California Association of Realtors estimated at year end that only 9 percent of San Diego County residents could afford the region's median priced home.
“Japan just raised their prime rate,” McNelis said. “Now they're taking some of their money out of American bonds and investing it back home where they can get a good yield.”
McNelis thinks rates will continue to rise but not dramatically. “It wouldn't surprise me if by year-end we're at
6.5 percent
he said. “But I would be surprised if we're over that.”

With the Fed at 6.50% it seems highly unlikely that the B o E can keep rates as low as 4.5%. The next Fed move is in a few weeks and will take the US rate above the UK rate for the first time in years.

San Diego is almost an exact mirror market to the UK in terms of HPI and affordability and the rise in rates is slowing their market down dramatically. It will do the same here when the B o E are forced to get in line with the rest of the world.

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Can some one explain the link between the BOJ interest rate, current around 0.1% and the UK, USA interest rate. I have heard that there exist a huge amount of liquidity currently, the market is awash with cheap money etc. They will absorb this by raising there base rate.

Could you say borrow 1 million pounds from a Japanese BS, then invest it with a UK based building society at 4.5% , so in reality you make 4.4% yield for doing nothing.

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By the time they're forced to do SOMETHING, I think the BOE will lower, because by that time we'll be in recession.

They lowered through the last recession. It won't help HPI though, because it would be credit-for-basic-essentials.

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  • 301 Brexit, House prices and Summer 2020

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      • down 5% +
      • down 2.5%
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