Interest Rates: What We CAN Expect from the Fed Rate Cut Tomorrow
Everyone expects the Fed to cut mortgage rates tomorrow.
I really, really, REALLY wish I could say that mortgage rates will come down immediately, but I doubt it.
Mortgages are usually a function of the 10-year treasury note. What has happened recently, however, is that the spread - the difference between the 10 year note and mortgage rates - has increased dramatically, as buyers of mortgages are now asking for a higher risk premium. The Fed cut won’t necessarily affect the 10 year rate, at least in the short term.
So what can we expect?
Hopefully, an increase in consumer confidence, for one thing. People like to hear about interest rates going down, not up, and that makes them more confident about buying things, like homes.
Realistically, it will also put a little more money in people’s pockets. The rate affects credit card interest, and home equity loan interest, and those will become cheaper for many people, so monthly payments will get a little easier.
Finally, it will also put a little more liquidity, i.e. money - into the financial system, which will eventually affect the amount of money available for loans.
None of these changes will happen overnight, but this is hopefully the start of a trend that will continue to put money into the system, and make credit a little easier for homeowners.
Today’s Buyers Market will eventually shift back to neutral, the question is just when?
