A New House ??“ Risks and Benefits
Ricardo Burks, Jr.
Being as though I am a licensed real estate agent in the state of Maryland I know firsthand that the Federal Housing Authority (FHA) and the Federal Open Market Committee (FOMC) both play a huge role in national policies that affect our nation. According to Hud.gov FHA is the single largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934 (2011). The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight (Federalreserve.gov). When the Federal Reserve raises interest rates on the money it lends to banks the banks intern raise the rates it charges its customers which could slow the housing market due to the amount people can afford to spend because of higher rates. I would recommend to anyone purchasing a house to buy when the rates are low and use an FHA loan because they are less expensive due to the fact that they are insured by the government. I would tell them that the tax breaks and ability to build equity far out way the possibility of loss in property values.
(Unknown, 2011) The Federal Housing Administration retrieved March 5, 2011 from http://www.hud.gov/offices/hsg/fhahistory.cfm
(Unknown, 2011) Federal Open Market Committee retrieved March 5, 2011 from http://www.federalreserve.gov/monetarypolicy/fomc.htm