Fed Cut Results in Lower Mortgage Rates, Hopes to Boost Housing Market

Fed Cut Results in Lower Mortgage Rates, Hopes to Boost Housing Market
By Howard B. Stanton, III
Senior Loan Officer, SunTrust Mortgage

Interest Rate Drop

The recent Fed cut in short-term rates gave a boost to the stock market, but also resulted in a decrease in long-term rates such as 30-year home mortgages.   Mortgage rates are now at historic lows, with fixed rates as low as 4.625%.    Normally, a Fed rate cut will not have such an impact on mortgage rates, but this time there was an additional message:    The Fed reiterated its earlier stated goal of purchasing additional mortgage (long-term) debt from Fannie Mae and Freddie Mac.  The lower rates make homes more affordable; for instance, a drop in rate from 6.250% to 4.625% is like dropping a home’s price by 10-15%.

The Fed cut will not only help new home buyers, but there is an added boost to the economy as well.   Homeowners with equity lines will see those payments go down.  But also, many homeowners with mortgage rates at 6% or higher will be refinancing.  The resulting  lower payment “is like getting a pay raise,” as one of my clients put it.  Also, much of the $700 billion in stimulus funds has yet to reach the consumer.  It will take time for it to reach the consumer “on the street.”  Yet some of the funds are already at work, resulting in a greater availability of auto loans, for instance.   

With housing prices already very attractive, the lower mortgage rates are expected to provide a welcome boost to the housing market.

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