Remember When?

by Osman Parvez

I was digging through old blog posts this week and came across a little gem. 

From Fed Takes a Breather

For the first time in two years, the Federal Reserve took a break by not raising interest rates. From what I've read, investors aren't sure whether this will be a long pause or a short one. For now, the discount rate (a key benchmark for all interest rates) will stay at 5.25%, a welcome relief for many borrowers.

What does this mean for housing? Mortgage rates nationwide have recently begun trending lower so the Fed decision today could help ease the landing for housing in many parts of the country. Many borrowers who took out adjustable rate mortages (ARMs) might not be pinched quite so badly, though no doubt they'll notice the difference when low initial rates reset to benchmark levels.

Talk about entering a way back machine.     Today, the Fed Funds rate is effectively ZERO and it's been stuck there since about 2009.    

As a benchmark for interest rates, the Fed Funds rate (and discount rate) a the foundation for essentially all bank lending in the Untied States - including, of course, mortgage rates.    I like to think of it as a gas pedal for economic activity and we've been pedal to the metal for a long time.  

Given last week's surprising market volatility and drop in mortgage rates, it looks like we're not letting up the gas anytime soon. 

Here's a long term mortgage rate chart for comparison...

For buyers and sellers, the number one question is whether rates will continue to fall.    As I've said many times, nobody has a crystal ball.   When I wrote Fed Takes a Breather in August 2006, I thought the drop would be relatively short lived.    Instead, we've had 8 years of dropping or flat rates.   

Something to think about.  

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Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.