Zero Percent Interest Rates Bring Building Opportunities

This past Thursday, the Fed voted not to raise interest rates. This zero percent interest rate might serve to drive economic growth by increasing instances of new residential construction, which is seen as an indicator for the state of the economy.

As a result of the Fed’s announcement, many people who want to renovate their homes or build new ones will now find lower fixed mortgage rates. They will be able to refinance existing home renovation loans for lower rates as well. Loans for new constructions and renovation projects, which are assessed as signals of economic strength, are now more accessible. They will cost those embarking on the building projects less over time.

Residential construction is measured through the number of new residential building and renovation permits issued in a fixed time period, per unit being built or renovated.

The more permits that are issued, the more money people have and are willing to spend. When the economy is on a downturn, historically consumers are tight with their money, if they have it, saving it for necessities. They are not purchasing newly built homes and they are not renovating existing ones.

There has been a nine percent increase in the amount of new homes built or renovation permits issued from 2013 to 2014, and 15 percent increase from 2014 to 2015, according to U.S. Census Bureau data.

Comprising roughly four percent of the US’s GDP, increased new residential construction will have a positive effect on the US economy.

Zero percent interest rates fuel consumer confidence which in turn causes more residential construction permits to be issued.

By making loans for residential construction cheaper and therefore more accessible to those contributing to the US economy, the zero percent interest rate will serve as a driver for economic growth, that is, in turn, assessed by the number of this types of new construction.