As Fall presses onward towards winter, it is an opportune time to look back at how this year has fared and where we think the GA finance market for prop driven aircraft will go in the near future. One would think that with interest rates at historic lows and fuel prices stable, this market would be having a resurgence. However, based on the data that we see in our office, the prices on prop driven aircraft have remained steady. It appears to continue to be a buyers’ market, with business being stable, no dramatic upswings in pricing and no down swings in dealer inventory. The number of transactions we are experiencing is about the same as last year and slightly up from the 2013 levels. Our rates and terms have remained steady with little upward or downward pressures since well before the beginning of the year.
It seems that whenever I turn on Fox Business News, I am being told that the Fed has again stated emphatically that interest rates will be rising at the very next Fed meeting. It is telegraphed by the Fed Chairwoman Janet Yellen that the economy is strong enough to raise interest rates to “normal” levels. Yet after each Fed meeting one of the “Governors” dutifully trots out and says “we really think that at the next meeting we will raise rates because the economy is so strong”…
The Fed usually uses rate adjustment as its first tool in fighting inflation. When the economy heats up, prices go up and the value of money goes down. By raising rates (the cost of money) the Fed hopes to damper demand and slow the economy to acceptable levels of inflation.
In 2008, the Fed put the “Benchmark Interest Rate” at near zero to stimulate the economy. After 7 years, we see that the labor participation rates are at 38 year lows, the economy is slouching along in the slowest recovery recorded and GDP for third quarter is at “the new norm” of 1.5% annual growth rate. All the while, inflation is floating around 1.7%. The Fed gambles that raising the rate, even slightly could pour cold water on the luke warm recovery.
I am no economist and I could very well be misreading the tea leaves, but I believe there will be no rise in interest rates until well after the New Year. I also believe that with a federal government that is bent on recasting our economy to one that is more centrally controlled through regulatory expansion and tax policy, we will continue to slouch forward at anemic intervals for the next year and a half.
What this translates to our customers and potential customers is simple… It will continue to be a buyers’ market with stable prices and low rates. So get ’m while they’re hot!