The Fed cut it's discount rate to near 0% yesterday. There is not much more ammunition left in the Fed's arsenal to make further cuts and investors wonder what they can do next to shore up our credit system. If you have a prime-based HELOC, that does not have a "floor", you should be turning cartwheels today, but don't expect too much to happen with mortgage rates.
The financial markets already anticipated a cut of 0.5% and that effect was factored in to today's rates. This morning, the market is poised in anticipation of wiping out most of the yesterday's gains as the realization that, "It may not do that much to help" sinks in. On the flip side, if the stock market continues to rise, demand for the Tbills will drop off and could conceivably send those yields up. (Complicated system - that does NOT favor the little guy!) So, a continued rise in stocks MAY put downward pressure on the price of Tbills and drive mortgage rates back up. (Isn't this fun!)
Suffice it to say, the short term psychological reactions will wane very quickly. This FED rate drop will most likely be "short term". Then, as the markets re-gain their composure, rates will return to their previous levels and erase those short term gains. What's the good news?
Rates will still remain at historically low levels; and, we could see a much slower trend downward. But, most likely Banks and Lending Institutions will hoard the spreads to try to recover some of their huge losses in their servicing portfolios and investment banking divisions. (Opportunistic SOB's!)
To become a fact, the 4.5% mortgage (that seems to have everyone's attention) would require extreme intervention by the Fed. We all got wind of that # in the press over the last couple of weeks. What it did was actually slow the recovery! How? Buyers who were otherwise comfortable with the rates in the (historically low) mid 5% range and were ready to buy have now moved back to the sidelines in anticipation of these low rates. It COULD happen, but according to one of our local professionals, the general feeling is that "Even if the FED starts buying mortgages directly, the banks will still try to figure out how to pocket the spread and increase their miserable bottom lines."
With rates at an average of 5.25%, the difference in the payment will be around $45.00 per $100,000. I think when consumers become aware of what that monetary difference is, it will change their perception of whether they need to wait around or not.
Now IS the time to buy!(Special Thanks to Grady Brown, Wells Fargo Mortgage Consultant, for this content; For addntl info - 850-522-6162)
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