The Federal Reserve does not directly control mortgage rates. 

The Fed only controls the Fed Funds Rate, the interest rate on a very specific type of loan made from one bank to another.  The Fed Funds Rate, however, is directly related to a consumer-focused interest rate called Prime Rate, the basis of interest rates on credit cards and home equity lines of credit.

Hi Jim.  I have wondered this as well.  Realtor friends of mine seem to celebrate the rate cuts.

It hasn't mattered to me at all. 

Ken

Jim, you're right, who cares?  Last year I was President of the Ventura County Coastal Association of Realtors the press called on every rate cut wanting to know what that would do to sales.  Each time, they acted surprised when I pointed out that those types of rate cuts (when they do have an impact) could actually raise interest rates.  Then they printed whatever they wanted to say, anyway!

Hi Jim,

A cut in the Fed Funds Rate does not have a direct nor immediate impact on any real estate loan program unless it is perhaps tied to the prime rate.  The bond market, especially the 10 year treasury, has the most direct impact on loan pricing, which has actually been fairly volatile over the last few months due to credit concerns, employment concerns, economic (recession) concerns, etc.  There are still many loans tied to LIBOR and the LIBOR base rate has actually gone up slightly during the month of April even though the Federal Reserve is widely expected to drop rates this week by another .25%.

Jim- I am noticing our business is starting to pick up, not where we want it, but much better than it has been. Have a great week.

Jim I believe you're right. Years ago the Fed Rate did impact real estate interest rates. Every time the Fed's increased the rate, homes loan rates always went up. Two or three years ago when the Fed Rate started going back up again, home loan rates didn't seem to be impacted that much. 

Good Post!

Jim

I think the thing that will have a greater impact is when the foreclosures stop or at least slow down and when the bank short sales dry up some, the abundance of inventory is keeping people from feeling like there is no rush to buy that if they wait they'll get a better deal. So the rates have little impact as some of the other folks have suggested, but I think it's inventory rather than rate.  Steve

Hi Jim,

I thought I'd chime in here and give you some good info on this subject. First, John T and Bill E are correct in that the Fed Funds Rate has no direct impact on interest rates.  However, lowering the Fed Funds Rate typically has the adverse affect on interest rates.  Why?  Because lowering the Fed Funds Rate causes people to spend which is Inflationary.  If Inflation flames arise, bond prices will suffer later as the fixed rate of return they generate must yield a number to compensate for higher inflation.  This is a good explanation

Here is a letter that I sent out to my clients prior to the FOMC meeting in January, but after the emergency cut on January 22nd.  I followed that with this letter which explains even more on this subject when they cut again in March.  Also, to comment on what really drives interest rates - it's MBS or Mortgage Backed Securities not the 10 year Treasury.  I'd write this all out for you, but that would be a huge post.

Hope this helps.

The answer is no. With credit being as tight as it is, it hasn't helped. Yes, the Fed. Runds rate doesn't directly impact mortgage rates. But with lenders fighting to survive these days, I don't believe it would matter anyway. We just need time to sort this mess out. Keep going! That's the key.

Paul

Not really since these are short term rate that are affected.

Your Friend in Charlottesville Virginia!

the secondary bond market is what controls the rates. Consumer confidence is the factor that moves homes.

Bonner

No it has not! It is actually making the uneducated clientele wait because they think the fed's cutting the rate will impact their rate and no matter what you tell them they still want to wait and see.

For sure over the last 4 months all the hype about rate cuts has not helped the mortgage business. I dont know about you but it gets tiring hearing customers say they want to see what the Fed is going to do before making a move. No matter how many times you explain how there is no direct correlation, and with the proof of mortgage rates being lower in January before any of the Fed cuts. Just goes to show you the power of the media.

I would also have to say NO.  Customers do not understand the way mortgage interest rates work and how the rate cuts do not have a direct affect on mortgage rates so they have a hard time understanding why their interest rate has not dropped the day that the Feds cut the rates. 

Things are moving along pretty well here except for all the Fannie Mae insanity that is happening in underwriting right now.  Many of my clients are investors and we are seeing some LONG DELAYS in underwriting because of the guidelines being modified almost daily.

No Jim it has not. When rates finally start rising again is when folks will jump off the fence. My 2 cents

As an investor with real estate loans based upon the prime, a cut helps me, but in general while there are short term winners and loser from their interest rate adjustments, we win as a country by having a stable monetary system (no deflation, not too much inflation) which is the reason so many foriegners have invested here (which helps everyone).

Although, as the world economy grows and trade amongst everyone increases, the Feds interest rate changes are becoming less significant to the world and not as impactful in America.

No, it just makes the buyers think the rates have dropped, which they haven't, which makes them unsure of what they know about the whole process and even more nervous.

First time home buyers appear to be motivated by this news. Even though it really has not trickled down to mortgage rates yet.

I used to see an uptick in phone calls, but this was before the lenders tightened up so much on the underwriting guidelines.  Even a full point difference in rate is irrelevant when your buyers can't qualify anymore.

I haven't noticed a difference either.  I've heard the reason for it is that the banks are not passing down the lower rates to consumers since they have been losing money.  Not sure if it's true or not.

To all, I am traveling and cannot answer you individually.   I've read all the comments...and agree..I've not seen any bounce from the rates.  What's up with that?