What a Crazy Market that we are living in!!!!!

When you hear on the news that the Fed cut rates, it easy to assume that they cut mortgage rates.  Unfortunately, that's not the case as the Fed Fund rate has nothing directly to do with mortgage rates.  Let's start by looking at what the Fed Fund rate is.  This is a rate that banks charge one another for overnight lending.  That's a far cry from a 30 yr. mortgage.  Now some rates, such as Home Equity Lines of Credit and some car loans, may immediately go down.  More often than not, we've seen mortgage rates react negatively to Fed Fund cuts.  One reason is that Fed cuts are seen as inflationary and inflation is not good for mortgage rates.  Secondly, you'll typically see the stock market improve on the news (at least that's the idea).  Since stock market money competes with treasury/security money, if it flows into stocks, it's flowing out of bonds and thus worsening rates.

The final comment I wanted to make regarding a relationship between the Fed Fund rate and mortgage rates is to look back over the last couple of years.  Since the highs of the summer of 2006, the Fed has cut the Fed Fund rate almost 4%.  However, when you look at mortgage rates in the summer of 2006 vs. now, rates are only about 1/2% better.  In other words, if there was a direct correlation, mortgage rates would be in the 2's (don't get me wrong, that would be incredible!!). 

As I've said time and time again, these are unprecedented times full of uncertainty.  I called my manager at 7am this morning asking if today's news would be good for rates or bad for rates.  This is a man who spent 25 yrs. working in the securities business.  His response was, "I have no idea."  And that's just it.  No one knows what's going to happen next.  For now, rates are pretty good (within striking distance of the very good rates we saw 3-4 weeks ago) and seem to be waiting for some direction.  I still feel that rates will ultimately improve.  But, it doesn't look like it will be today and it won't be due to a Fed Fund cut.

Enjoying the ride!

Scott Cone Realty Mortgage Corporation7000 Executive Center Drive Waverly Building, Suite 200 Brentwood, TN 37027 Phone: 615-221-6183     Toll Free: 866-596-9809 Ext. 321 Cell: 615-566-5822   Fax: 972-522-5449   To Apply for a Loan. Please go to: http//www.realtymortgage.com/scottcone  

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