How does the rate cut by the Fed affect mortgage rates
An excellent ask the agent question.
What happened to mortgage rates in light of the Federal Reserve interest rate cut the other day, did mortgage rates go down?
Would you be surprised if I told you they went up and how can that be because that is exactly what happened. Mortgage rates nudged up slightly because they are based on long term bond rates, not the Fed Funds or discount rate. The rate cut by the Fed will help those with variable rate home equity loans and credit card debt which are tied to the prime rate and dropped by a half percent following the rate cut.
Let's look at some charts of Ten Year Treasury Bonds and mortgage rates courtesy of Yahoo! and Bankrate.
You can clearly see the activity on Tuesday at about 2:15PM when the Fed rate cut was announced and you can also see that 10 year Treasuries have been climbing recently in anticipation of the Fed rate cut since drifting down from early July. Mortgage rates have been falling along with 10 year bonds since early June also and have now ticked up along with Treasuries.
What does all this mean to the Charleston South Carolina real estate market. Rates are still historically low, the fed has injected a lot of liquidity into the system hoping to stabilize the real estate and mortgage markets which have been somewhat paralyzed by fear and the credit crunch. Certainly, people feel a little better knowing that the Fed is doing what it can to help and with mortgages being a little easier to get today than seemingly the past month or so, it should help improve demand which will be good for the market.
Actually, the federal funds rate and the 30 year fixed have fallen by identical amounts in 9 weeks. You might say that the "Fed was just catching up" to the market. Actually, Holden Lewis writing at Bankrate.com said just that. Click here for his analysis.