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Federal Reserve Cut Interest Rates 1/2 point!

Fresh from the Washington Post:

The Federal Reserve cut a key interest rate today, aiming to prevent turbulence in the housing and credit markets from slowing the U.S. economy.

The Fed's policymaking committee slashed the federal funds rate, the rate that banks charge each other to borrow money, by half a percentage point to 4.75 percent. It was the first rate cut since 2003.

For more information go to http://www.washingtonpost.com

This may help the housing slump with a fresh influx of money. Let's hope that the buyers take notice and get off the fence.

Posted by Ray Perry; Realtor, CRS, GRI, e-PRO on 09/18/2007 02:39 PM

Comments (22)

federal reserve, interest rates

22 Comments on Federal Reserve Cut Interest Rates 1/2 point!

SEP

2007

Could this be a sign of stability again in the real estate market? I just got the news from my broker who sent me a text message. I thought I'd blog about it but it looks like you beat me to it! Great post and great news for us!

Ray,

I have been watching the news the afternoon and I think this could help the housing market start to pick pack up. I guess we watch and see what happens.

Chris:

Great news indeed!

I am keeping my fingers crossed Ray. Last I saw the stock market was up over 300 points!

Brad:

As long as we don't hold our breath, I think we'll survive.

Kinda hate to be a bit of a naysayer, but I don't think it is going to have a tremendous impact on the housing scene, at least in the high cost markets like SoCal. Interest rates have still been very, very low for the last couple of months. What is killing the activity/sales at the moment is the disappearance of adjustables, stated income or other reduced doc loan types.

Most lenders/investors have had a sort of "knee-jerk" reaction to the poor performance of stated loans when those loans come to adjust. The homeowners just can not make the fully indexed payments, and now they can not qualify for a full-doc type of loan, the defaults are coming in record numbers.

I am targeting ONLY those that can demonstrate ability to qualify full docs and have at LEAST a 10% downstroke.

Ann:

Let's hope it has a long term effect. It may not do much on the short term, but it's a start.

Steve:

Thanks for stopping by. I've heard that the sub-prime is only 15% of the whole market. There is alot of areas that still have lower priced homes, the median price in my county is under $300,000. This is good news, I don't care how you look at it. Anything can't hurt.

SEP

2007

Ray,

I was not commenting on sub-prime loans. Great loans are still available for borrowers that can prove their income and reserves. The stated, low doc and no doc loans are pretty much gone, and now people actually have to prove their ability to borrow. THAT is what is coming back around to slow the housing market.

Very surprising!! Boy the market really took off like a rocket. I guess the FED has opened there eyes to the challenges in our economy.

The stock market took off like a rocket true, but the yield on the 10 year bond is up 24/32 at this moment. You can probably expect the 30 year conforming mortgage to be about .125% higher tonight.

Steve:

You probably have a much greater insite than I do, I value your opinion. I am looking for the silver lining in this cloud.

Do you think that this will help the RE market?

Perhaps the perception is greater than reality. If folks get the signal that it's OK to buy again, we may get a little releif.

Perhaps the lending market should tighten it's requirements, the B and C paper was too easy to get.

Tracy: We definitely have some challenges heading our way, I hope the FED knows hat they're doing.

Ray:

I believe the silver lining is that some consumer confidence will return to home buying. But because the majority of the lenders have REALLY tightened up there guidelines, only the prime borrowers will have access to mortgage financing. Interest rates right now are very, very good for the Fannie/Freddie conforming type loans!

If a seller is really serious about selling his property, then he/she had better be offering the full 3% limit on seller's concessions and pricing the house accordingly on the low side of medium. There are still some tremendous buys available right now in my western Riverside County, CA area. The 'challenge' here is that there are not too many properties listed for less than $417,000 that a 'full doc' type of borrower would be interested in. I now that sounds crazy, but it's true.

Sreve: I just checked just one neighborhood in my farm area and found that there 110 active listings, only one is in escrow and that is a short sale. I have 50 listings and only one escrow. Things are very scary here. Sellers have the attitude, "why should I drop the price? No one is buying anyway." Perhaps I should write a blog on that subject.

Ray:

I hear ya about not dropping the price. My wife and I bought a new primary residence in May 2007 and immediately listed the previous house for sale. I listed it at $519,900 which was about $20K below the comps at the time, thinking that i would get some quick action. I even offered some ridiculously great financing terms. We had 1 offer from a guy who couldn't qualify. We finally reduced and reduced down to $449,900 and then the mortgage market blew up.

At that point we said screw it, let's keep it and rent it. Nothing is selling because of no financing. If financing turns around in the next couple of years, we'll revisit the selling idea if we need to.

Steve:

I hear you. Many of my sellers are putting their houses up for rent. I had four this week so far.

SEP

2007

Ray, we're thinking it helped, but there's a good way to go yet. Have no indication how long. Suspect 2009, but that's only an assumption, rather than anything more meaningful as a predicator.

We stopped by to visit and thank you for commenting on our O.J. satire from yesterday. It was appreciated.

Cheers...

Helped? Nope.

My 3 best A paper lenders are .125% higher Friday AM with additional .125% to the cost.

TNX yield is 1 9/32 higher at close today (Thursday)

Perception has absolutely NOTHING to do with reality!

HELL YES the rates are down today, let's get in and get locked!

SEP

2007

Gary: Thanks for the kind words. You're right, we do have a long way to go.

Steve: Spoken like a true closer, my kind of guy! Let's hope with further reductions that things will loosen up again. Remember, this won't last forever.

SEP

2007

I am so glad about this. We certainly needed the help here!

SEP

2007

Just an FYI, but rates/costs are up on 30 year fixed rate mortgages since the "rate cut". Got a little bit of love on the 5/1 ARM, 7/1 ARM however. This rate cut primarily affected buyer's perception, not the reality of the market.

Dale: I hear you. Thanks for stopping by.

Steve: If the perception encourages the buyers, so be it. The perception that the bubble bust is part of what started all this mess. Eventually things will loosen up along with further cuts in the rate. Thanks for your input.

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