Yesterday, The United States’ Federal Reserve Cut Interest Rates by 50 Basis Points in a move that I think surprised everyone.
They said the benchmark rate cut is the result of market fears over the COVID-19 virus. It is expected to lower adjustable-loan rates and there is certainly a possibility that it could indirectly push fixed rates lower.
The United States’ Federal Reserve held an emergency meeting and voted to cut its benchmark interest rate to a target range of 1% to 1.25%. They said the emergency meeting was aimed at jolting the economy during the worldwide spread of Coronavirus.
“We’re Probably not going to see too much of a decrease in mortgage rates at this point since mortgage rates fluctuate based on long-term bond rates.”
So, what does this mean for real estate? If you are looking at homes for sale in Riverstone in Naples Florida, will you see lower mortgage interest rates? We’re Probably not going to see too much decrease in mortgage rates at this point since mortgage rates fluctuate based on long-term bond rates. There is however one big exception which I will talk about in a minute which are Home Equity Lines which are based on the prime rate.
Mortgage rates do not respond to the Fed, they respond to market forces. Mortgage rates have done pretty well, but I think the Fed is playing Catch-Up with this cut.
Mortgage rates have plummeted since the beginning of the year to the lowest average since 2016 as a result of market movements in response to the coronavirus. While the Federal Reserve adjusts short-term interest rates, mortgage rates fluctuate based on long-term bond rates.
In particular, mortgage rates in the U.S. roughly track the direction of the yield on the 10-year Treasury note TMUBMUSD10Y, -3.09%. The 10-year Treasury had fallen to all-time lows in recent weeks as investors fled to the safety of bond markets amid the downturn in equity markets.
To that extent, the Fed was responding to the bond market’s recent movements with its decision to cut rates Tuesday, economists said.
Any Continued downward movement in the 10-year Treasury would normally signal downward movement in mortgage rates. Where they stand now, Treasury yields suggest that mortgage rates still have some room to move lower, said Rick Sharga, a mortgage industry veteran and president and CEO of CJ Patrick Company, a financial-services consulting firm. “I wouldn’t be surprised to see 30-year loans with 3.0% rates before things settle back down,” Sharga said.
But another question is emerging in the current low rate environment: Will lenders let mortgage rates go lower?
Current low rates have already caused a boom in refinance activity. And demand among home-buyers remains elevated, in spite of the short supply of homes for sale. As a result, lenders don’t need to give Americans much more incentive to apply for new home loans.
Many in the finance world suggest that those in the refinance market would be smart to lock in rates now, Kapfidze said. “Most lenders will let you relock at the lower rate” when you close the loan, he said.
One exception to the mortgage rates trend could be home equity lines of credit, or HELOCs which I mentioned above. These are adjustable-rate loans based on the prime rate. As such, they are set to see a drop in interest rates, since the prime rate does closely follow the Fed’s benchmark federal funds rate.
HELOCs have been slowly falling in popularity, and over time the amount of HELOC debt has been gradually falling as people pay down their debts and fewer people take up the slack by borrowing them. This seems time for that trend to possibly reverse. The rates on HELOCs are going to be so tempting, especially for people who want to fix up their homes.
Comments(0)