Personal Finance

'Virtuous Cycle' of Low Interest Rates Gives Savers Hope

Zigy Kaluzny | Stone | Getty Images

Savers and those who rely on bond market returns for income despise the ultra-low interest rates the Federal Reserve has kept in place since 2008.

If you're a home builder, you probably love them, and Wednesday's housing starts number for November, due out at 8:30 a.m. ET, likely will reflect the ongoing benefits of low interest rates for the housing market.

The Fed lowered short-term interest rates nearly to zero in the wake of the 2008 financial crisis and likely will keep them there for another year, which is why savings rates are so low, and why the Fed is so unpopular with savers.

Indirectly, the Fed has also helped push down long-term interest rates, which means the average 30-year fixed-rate mortgage is at a record low 3.32 percent. If you were bought a median-priced home — half costing more, half less — at $186,100, your principal and interest payment would be $817 a month.

The low mortgage rates have boosted demand for houses, precisely what the Fed hoped to achieve to help a struggling economy three years into slow-growth recovery.

Maury Harris, economist at UBS Investment Research, expects 900,000 housing starts for November, vs. 894,000 in October. That's still a far cry from the average 2.68 million housing starts in 2006, but stunningly better than 2009's 554,000.

Increased demand for new houses has helped boost sale prices of existing houses. It's a virtuous cycle -- when people can sell their homes at a profit, they're able to afford and buy pricier homes.

All that building and home buying is a welcome development for homeowners and Realtors. Homeowners looking to sell have a better shot at success. Homeowners wanting to stay where they are feel wealthier because the value of their biggest asset has rebounded so they go out and spend more.

And it means job creation in the hard-hit construction industry. When unemployment declines, more people have the paychecks to buy homes and increase their buying of goods and services.

It's likely Fed policy-makers couldn't be happier, and though it won't happen in the next few months, it moves the date closer that the Fed will finally raise rates and give some relief to long-suffering savers and bond investors.