A Bold Move
On Tuesday, the Fed made a bold move and cut the Federal Funds rate by .5%. The market had been anticipating a .25% cut, but Fed Chairman, Ben Bernanke, took a strong, surprising position and slashed the rate half a percent. The results were immediate. The stock market experienced the largest 1 day gain in over 5 years.
The questions now are, why did Bernanke make such a big cut and how is this going to affect the housing and mortgage markets?
There are some that say that the reason he made such a bold move is because the middle class in this country is in trouble. I would argue with that and tell you that even though the country is in the middle of a housing crisis, the economy in general is in good shape. Over the past 52 weeks, the Dow and the NASDAQ are up 20% - not really an indication of an economy - middle class or otherwise - in trouble. The reality is that Bernanke probably made the cut larger than anticipated to forestall any potential problems in the economy. The way the world and the press works today is that all the negative news can actually MAKE bad things happen and bad news sells newspapers. Tell everyone the economy is bad, and people will get scared and then the market will start to get bad.
The next question is how the cut will affect the housing and mortgage markets. Initially, we should not expect the change in the Federal Funds rate to affect any changes in mortgage rates. Today, a 30 year fixed conventional loan is at 6.125% - almost an unprecedented low. What is going to happen is that the cut will affect credit card rates and such and lead to a greater money supply - more disposable income. The other positive outcome of this would be more money being made available for loans.
All of this is very good news. The economy is strong and we will get past this housing crunch. For Real Estate, 2005 was a sellers market. Houses went on the market one day and the seller had multiple offers within a week. As strong a sellers market that was, today we have a strong buyers market. Prices on housing has dropped significantly and there is a large inventory of houses out there for buyers to pick and choose from. So don't listen to the doomsdayers in the press - buyers of homes have the upper hand right now and there are lots of properties to choose from.
The questions now are, why did Bernanke make such a big cut and how is this going to affect the housing and mortgage markets?
There are some that say that the reason he made such a bold move is because the middle class in this country is in trouble. I would argue with that and tell you that even though the country is in the middle of a housing crisis, the economy in general is in good shape. Over the past 52 weeks, the Dow and the NASDAQ are up 20% - not really an indication of an economy - middle class or otherwise - in trouble. The reality is that Bernanke probably made the cut larger than anticipated to forestall any potential problems in the economy. The way the world and the press works today is that all the negative news can actually MAKE bad things happen and bad news sells newspapers. Tell everyone the economy is bad, and people will get scared and then the market will start to get bad.
The next question is how the cut will affect the housing and mortgage markets. Initially, we should not expect the change in the Federal Funds rate to affect any changes in mortgage rates. Today, a 30 year fixed conventional loan is at 6.125% - almost an unprecedented low. What is going to happen is that the cut will affect credit card rates and such and lead to a greater money supply - more disposable income. The other positive outcome of this would be more money being made available for loans.
All of this is very good news. The economy is strong and we will get past this housing crunch. For Real Estate, 2005 was a sellers market. Houses went on the market one day and the seller had multiple offers within a week. As strong a sellers market that was, today we have a strong buyers market. Prices on housing has dropped significantly and there is a large inventory of houses out there for buyers to pick and choose from. So don't listen to the doomsdayers in the press - buyers of homes have the upper hand right now and there are lots of properties to choose from.
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