FED HAS SLASHED BOTH FEDERAL FUNDS RATE AND DISCOUNT RATE at Real Estate Resource

Last week the Federal Reserve slashed the federal funds rate on January 22nd by 3/4 of a percentage point, the biggest interest rate cut in 18 years!! The federal funds rate is the interest that banks charge one another on overnight loans.

On the same day, the Fed also lowered its discount rate to 4% from 4.75%. The discount rate is the rate at which banks can borrow directly from the Federal Reserve. The Fed’s twin cuts are designed to keep financial institutions lending money to businesses and consumers, rather than fuel an economic downturn.

For the week of January 17th, rates on 30-year fixed-rates fell to their lowest level since July 2005 (as reported by Freddie Mac).

Falling mortgage rates helped boost mortgage application volume by 8.3% over the same week, the Mortgage Bankers Association said on January 24rth. Applications were 63.7% higher than during the same week in 2007 (of course, many of those applications were for re-finances I am surmising). The MBA is claiming that 66% of the mortgage applications were for refinances. But, still that is good news for the recovery of our mortgage marketplace. If these stats are correct, then we are experiencing exactly the results for which the Fed cuts were intended! These should keep financial institutions lending money. However, I must say that none of my clients are having any trouble getting financing. I think the “biggie” at the moment is “consumer confidence”. But, remember “buy low, sell high”. If appreciation has taken a momentary hiatus and interest rates are low, won’t it allow the first-time buyer to get into the housing market? Thus, allowing each tier (second-time move-up buyers purchase, allowing 3rd-time buyers to move on, etc) to progress!! This will naturally stimulate a market that is correcting, in my humble estimation!!!