Sep
18
2007
Feds Cut Rate
By Charles Turner
For the first time since June 2003, the Federal Reserve cut the key interest rate tied to home mortgages by .5%. Too little too late? Not the Fed’s business? The cure? It sounds like we can expect at least one more rate cut by the end of the year.Portland Real Estate Blog
Quick note: the difference between 6.5% and 7.0% on a $300,000 loan, all other things being equal, is $99.70 a month.
Yeah, but fixed rates are usually tied to the 10 year treasury and that was up slightly today. If we continue to see the kind of capital flight that we saw in July, the 10 year could keep going up even though the Fed lowered.
I agree with TiP. I think that at least in the short-term we will see fixed-rates remain roughly the same. However, because the rate cut was larger than most expected, 30-year could fall off just a bit. The 10-year benchmark (yield) has fallen off so much in the last month that I don’t think today’s movement will have much of a bearing. Besides, today’s sell-off in bonds was just a redistribution of assets from cautious investors hanging around to see what the Fed was going to do.
Well, since mortgage rates did not increase proportionally to the Fed rate increase, I don’t expect them to drop propotionally either.
Now that mortgage businesses are losing money, I’m not sure that they’re all that enthusiastic about passing their interest savings along to the consumer. I could see them absorbing the interest rate cut in order to buffer themselves against losses. After all, you can’t minimize your losses on bad loans by increasing the volume .
The biggest effect might be on foreclosure rates. That 0.5% rate drop, *if* it trickles down to the consumer, may make a difference between being house-poor and simply losing the house. Then again, it may not matter if that your interest rate will now reset from 1% to 8% instead of 8.5% …
This desperate drop in interest rates (so much for the “free market”, more like socialism for the wealthy) won’t bring back the insane lending practices that 46% of Oregon loans are made of.
Of course the REIC will try to tell us that everything is back to 20% yearly appreciation so go out and buy that 400K one bedroom condo, ok?