The Fed's decision to cut rates another 50 basis points (.50%) may be just what we need to jump start this market. Last week when the Fed met for an emergency session after world wide turmoil in the stock market, they cut the Fed Funds Rate by 75 basis points (.75%) to curb a global sell off. After the cut there was a noticeable movement in the real estate market, at least in the Riverside County area. Fence sitters decided to move forward and timid, would-be buyers poked their nose out from under the mat.
What's It All Mean?
Lets take a look at this for a moment though, what does it mean? Well the average consumer thinks the cut by the Fed means lower mortgage rates and an opportunity to own more home for less. That is true, however, not just yet. When the Fed cuts the Fed Funds Rate it will immediately affect short term debt like credit cards, home equity lines of credit, and auto loans. Are you thinking about getting a new ride, or maybe you are one of the few that still have equity in your home and need to tap it, in these situations you win, and right away.
Are you currently in the mortgage process? If you are getting a loan now and haven't locked the rate, or you have been shopping rates lately, don't be surprised if your rate actually ticks up a little. Traditionally, mortgage rates actually spike-up right after a reduction in the Fed Funds Rate. Why? Because the Fed is supposed to cut the rate to hedge inflation, if inflation goes up then bond traders sell. The bonds are what our mortgage rates are based on, the higher the price of the bonds the better pricing of your mortgage loan. Keep that in mind when shopping for a loan. However, there is a light at the end of the tunnel, mortgage rates will go down following the Fed Funds Rate, it just takes a little longer than most would think.