Monday, March 31, 2008
The Fed has steadily cut short-term interest rates since Sept. 07 but this doesn't affect mortgage rates as people seem to think (well, they usually go UP!). Cutting the "Federal Funds" rate effectively lowers the Prime Rate, which can affect most Home Equity loans as well as credit card rates (not that they will actually lower your interest rate w/o you asking!). These cuts also make it easier for companies to purchase/finance equipment and inventory. Likewise, they have made more funds available to banks in order to provide liquidity. The markets wer spooked by one of Wall Street's larger investment houses' liquidity concerns. The Fed/JP Morgan stepped in to save the day (too little/too late?) and the markets are still in flux. Add in the higher costs of gasoline (though recent inflation reports actually dropped a bit) and you have a pretty rough mix. The Fed traditionally cuts rates to spike economic activity and raises rates to combat inflation. Energy costs and higher commodity prices threaten to slow their pace of cuts (another cut is widely expected next week). One interesting correlation is that bad news for the economy can be linked to lower interest rates (now @ 5.75% or so) Stop sitting on the fence waiting for 5%-make your move NOW as credit is still available. The issue today is can you still QUALIFY for a loan? Yes, lenders have already taken the subprime hit-they will do anything to not originate any NEW ugly loans. Common sense is gone, fear has taken over. MORE info from GSU's chief economist (yes, a REAL Economist, not a "faker" like me : )
I know, Economics ARE boring-however, whether you're dealing with Buyers or Sellers (or if you are an IDIOT who is RENTING), you need to read this. As a closing attorney, I am a cheerleader for the real estate biz--chances are, if you're reading this, so are you! We all have a vested interest in things turning around. With that being said, you COULD choose not to believe what I'm going to say (remember-as a real estate pro people will think YOUR opinion is 'suspect' as well). Why? We say/WANT the market to do well but here are the FACTS: home sales are UP & sales prices are DOWN. Guess what? This trend WILL continue. Stats? Check out S&P Case-Shiller indices, the Wall Street Journal, Business Week, the NAR/NAHB & more. See the USA Today story linked HERE for more info (though a recent report wasn't as rosy for NEW homes). Why are prices still falling? INVENTORY. Yep, that evil "supply & demand"-you can't escape Economics! Too many homes = price drop. If you want to sell today, you may need to drop your price. If you have buyers sitting on the fence waiting for that price drop, there's another negative fact-rates are going to go UP. We are at historic lows right now; we're still around 6%. A $250K loan at 5.75%=$1198. IF you waited for a drop to $230K but rates go to 6.5%, suddenly you'll pay $1246. Is it really worth waiting? Another factoid for nervous nellies-stocks lost more $ in the last few months than housing did in the last year! Housing WILL rally-buy NOW!