Fed Cuts Rates in Effort to Boost Slumping Housing Market
The Federal Reserve's aggressive half-point cut Tuesday could provide support for a slumping housing market.
A quarter-point drop had already been priced into the market for Treasury bills and other instruments tied to mortgage rates, according to Richard DeKaser, chief economist for National City Corp. The deeper cut means mortgage rates may have a little more room to fall, giving support to prices.
The Fed Funds rate affects a range of consumer loans, including home equity and mortgages. Lower mortgage rates would add to the number of home buyers able to afford to make purchases, increasing demand for properties and buoying home prices. Buyers generally care less about the actual purchase price than they do about the size of their payments. If rates drop, so will monthly debt obligations.
Interest rates for conforming loans - those of no more than $417,000 - are already reasonably low, averaging 6.31 percent for a 30-year fixed rate loan.
But an important class of loans that might benefit from the big cut: the high-ticket home mortgages known as non-conforming or jumbo loans. These loans have no guaranteed secondary market because they exceed the $417,000 cap and Freddie Mac and Fannie Mae will not buy them.
With investors wary about any loan perceived as carrying the least bit of risk, jumbo rates have risen in recent months. They carry rates about a full point higher than conforming loans. Jumbos are especially important in high-priced housing markets such as New York, California, Washington D.C. and Boston.
Jumbo rates may come down if the cut makes consumers more confident, according to Mark Zandi, chief economist for Moody's Economy.com.
No comments:
Post a Comment