The Fed Lowered Rates Yesterday… So Why Are They Up Today?

roller-coaster-small.jpgSo… occasionally, I ask a fellow professional to write a guest post. Sometimes, it’s because I’m tired. (I am human after all.) But other times, it’s because someone else’s experience lends more credibility to the discussion. Please take a minute to read Monica Di Perna’s post on today’s interest rate situation and how it affects the real estate market in San Francisco and beyond:
The Fed met and lowered rates this week. They lowered the Funds rate (or the rate at which banks lend to each other.) While in the near future, this change may lower rates in the mortgage industry, today, rates are actually slightly higher higher than they were yesterday.
WHY? Well, the Fed isn’t the only influence that plays a hand in the interest rates that average borrowers see. Bonds also play a major role. But bonds are going the opposite way than we had hoped and now, they sit at 4.55%? So why is this the case? Well, a couple of reasons.
First -The attraction and flow of money is heading away from Bonds and into Stocks worldwide, particularly Banking Stocks that are benefiting greatly. Thus, there is more money pumping into the Banking system.
Second – There are expectations that the Fed may cut rates, yet again. This is making many investors stay the course and wait to see the Fed’s next move.
Third – There are some concerns over the risk of increased inflation (though I do not see that as a major contributor yet.) All reports still show slowing growth and low inflation.
So what comes next? Look for the market to moderate as investors adjust their portfolios to the new market and HOPEFULLY renewed activity in the secondary market with the influx of cash and a renewed attraction to Mortgage Backed Securities.
If this happens, we will see rates drop a bit and lenders will start providing a greater variety of loans again (though NOT like they were doing in recent years where loans where as easy to get as the prize in the box of Cracker Jacks).
In conclusion, the Fed’s action has definitely instilled a certain amount of confidence in consumers. However, there are still many unanswered questions! Is this a temporary fix? Will there be more rate cuts ahead? What impact will it have on the housing market? Let’s keep watching the inflation signs…this will be very important. If there are any signs of inflation, we may see the Fed refrain from any further rate cuts. So while the lowering of the Fed Funds Rate and the discount rate by .5%, has definitely calmed markets this week, the coming weeks will really let us know where the mortgage rates will stand.
I don’t know about you, but I’m hoping for lower rates!

Luba