Everybody is curious. What does this mean for me? Answer: don't bet the ranch on the cut.
While the Fed funds rate cut will impact the prime rate (read Helocs) it sure won't, in and of itself affect first mortgage rates. In fact if it causes the stock market to rally, it could have a negative effect. This happens when money flows away from mortgage bonds and into the stock market.
In fact from July of 04 to June of 07 the Fed raised rates 17 times at .25% per. First mortgage rates actually fell during the exact same time. Just yesterday, Alan Greenspan admitted that despite the Fed Reserve's earnest effort to raise rates in 2004-2005 it was completely unable to.
This all has to do with how investors percieve risk, inflation and their neccessary rates of return on their money. If they believe inflation will go higher, they'll require more return (higher interest rates) on their money.
It's a complex issue, I just hope this hleps someone out there. What is dangerous is the perception that all rates are now on the decline. While the PPI (producer price index - or inflation at the manufacturer's level) fell for August, the fall was due mostly to food and energy prices coming down. Now for September, oil is setting record highs with no end in sight. So expect investors to be jittery.
Tip for buyers: get in now. The deals are great and so are rates.
Tip for sellers: any other jolt to the economy could send real estate prices even further down. Until we burn off this excess inventory, it's a spiral. Sell while you can and strike a great deal on your next purchase. Waiting could cost you tens of thousands as more foreclosures come on to the market.
All the best,
Dan Dowling
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