Fed Rate Cut: Is 50 Basis Points Enough?
The stock market is going crazy over yesterday’s Fed rate cut of 50 basis points. Indeed, there are plenty of investors excited about the rate cut, which makes money cheaper, which means more profits for companies. But what about in the case of home mortgage interest rates? Mortgage rates dropped a couple of weeks ago on the anticipation of a Fed rate cut. Now that the cut has materialized — and it’s every bit as big as one could hope for — where will the housing market go now?
There are plenty of people that will benefit from the current Fed rate cut. Jumbo loans are likely to drop their rates, important in pricey housing market locations. Additionally, those with ARMs are likely to benefit. When their rates reset within the next year, they won’t be as high. Mortgage payments will go up, but they will remain within the realm of the manageable by many home owners, staving off some foreclosures.
But the effects on the housing market aren’t going to be immediate. And the effects on the subprime market are unlikely to be that big. After all, those with questionable credit may not be able to refinance into a better loan. And many loans on the subprime market come with prepayment penalties. So that means that most people saddled with them can’t afford to refinance anyway.
And there is another problem. CNN Money reports on how liquidity is still a factor that the Fed rate cut can’t fix for the housing market:
However, the real problem in the housing market is not interest rates, according to Keith Gumbinger, vice president for HSH Associates, a mortgage industry publisher. It is that there is not enough money available for making loans.
“The liquidity problem hasn’t changed,” Gumbinger said. “The primary issue is trust between buyers and holders of debt.” Investors holding worthless or heavily discounted paper are not eager to buy more.
So, while the stock market soars (for now, at least) and some find that the Fed rate cut is offering some relief, a housing market recession is still in the works.
But the Fed rate cut may have stopped a broader recession. Only time will tell.
Tags: housing market, home mortgage blog, home mortgage interest rates, home mortgage,
Fed rate cut, stock market Fed rate cut, home equity line of credit
September 24th, 2007 at 11:45 am
[…] rates are going up. There has been some doubt as to whether the economy will really be helped by last week’s Fed rate cut, and in the housing market fears continue. This is driving mortgage rates back up to levels seen […]