The Velocity of Money

The velocity of money is a term used by economists to describe the speed at which money makes its way through our economy. During boom times money moves quickly through the system as it's spurred on by consumer spending and investment, and in recessionary times it's velocity is diminished.
Why should you care?
Well, if you've been thinking about buying a home, then the "velocity of money" should be of concern to you. The Federal Reserve uses interest rates to control the money supply flowing throughout the system; low rates=more money in the system, and higher rates=less money in the system. In order to encourage borrowing, one tool that the Fed has is to lower the discount rate(the rate at which banks borrow money from the Fed). The net result is more borrowing, subsequently contributing to an increase in the "velocity of money".
Historically speaking, this monetary strategy has been used to encourage the country out of a recessionary cycle. However, over playing this card can be have unintended negative consequences. In the 1970's the increased "velocity of money" netted a 13% increase in the money supply, and interest rates skyrocketed to as high as 20%! Fast forward to 2009. In the hopes of increasing the velocity of money the Federal Reserve has exponentially increased the supply of money compared to the net increase in the 70's; I've heard some estimates as high as a 100% increase in money supply over the past 14 months! Now I'm not an economist or financial guru; I'm simply taking a historical example, looking at what we're doing today, and extrapolating a possible end result.
In short, higher rates mean less buying power, higher mortgage payments, and more difficulty in securing financing. So as you ponder whether to take the plunge or not, remember that the 'velocity of money"can put a real damper on you future plans. :(

How to buy a bank owned home

Buying a foreclosure can be a really stressful undertaking for many people. After all, you're buying the property As/Is. Many times these properties are distressed and in dire need of repair. But before you even get that far, the lenders are usually very specific about how those offers to be submitted. And if your agent omits or modifies even a seemingly benign part of that process, then rest assured that your offer is not going to go very far. I came across this very satirical approach on buying these types of properties on Yutube; enjoy!

http://www.youtube.com/watch?v=SM7oWKgCVo4

luxury at a discount

As I examine the outstanding available inventory of homes in Miami Lakes, particularly in Royal Oaks, it occurs to me that there has not in recent memory been a better time to pick up a high end property. There is such an array of available property types to suit almost any taste. Most of these homes are either nearly new or completely remodeled. There are at least 5 homes on the market that have over 1 million dollars invested into construction costs that any serious buyer could likley pick up for a fraction of that amount!
If you'd like to learn about some of these great deals, shoot me an email:
carlos.lobato@floridamoves.com