possible rate cut this tuesday;will it boost home sales & prices?

[waitingtobuy]

Not sure if this got debated in the forum yet.
Would be great to know opinions of the experts.

Will the interest rate cut,which seems to be almost certain, trigger a upsurge in home sales and hence start pushing the price upward again? Are the realtors in this forum suddenly noticing a up-tick in sales activity?

Also, could it be the begining of a series of rate cuts, just the way it happened between 2002-2004?

[JWM in SD]

Ahaahahaha…ahahahaha.

Buy now or be priced out forever right???

No, sorry WTB, unless it is a rate cut of several points, it ain’t going to help your RE wetdream any. Besides, you don’t really want that to happen anyway because then your dollars will be worthless unless you are already hedged in foreign currency….but something tells me you are not thinking about that now are you????

[LA_Renter]

Here is a little historical perspective regarding the Fed Funds rate during the last housing correction in the late 80’s to mid 90’s. The Fed funds rate in Feb 1989 was 9.75, by Sept 1992 it had fallen to 3.00. So during the last housing recession the Fed lowered 675 bps which is more than the 5.25 rate today. Nominal home prices in S. California fell over 30% in the early 90’s as the FED was cutting away. The metrics of the peak home prices of today i.e. home price to income, and home price to rent are twice as high as the peak in the late 80’s. If you watched Greenspan’s interview tonight he pointed out the FED today does not have the ability to lower rates as easily as they did in Greenspan’s era due to today’s inflationary risk. The days of the Greenspan put are pretty much over and that is according to Greenspan himself. I am sure Ben Bernanke is glad he said that. So no the upcoming rate cuts will not help that much, it’s kind of like shooting down a grizzly bear with a BB gun.

[LA_Renter]

duplicate

[hipmatt]

No, this will not really help out RE.. RE has too much inventory and remember, it is still priced too high. It may help the consumer a bit that has credit card debt, and HELOCs. Won’t do much to the 30 year fixed rates, it may actually cause them to go up. I suppose adjustable rates may come down, but will this save RE? ..NO

[Eugene]

Lower fed rates may affect RE if they translate into lower interest rates on fixed-rate mortgages. Short term (6-12 months) lower interest rates won’t matter. Long term (2-5 years) lower interest rates mean that bottom is formed sooner.

There’s doubt that fed rate matters much in RE any more. Too much rate cutting – weakening dollar – global investors stop buying US Treasuries – Treasury yields go up – mortgage rates follow.

[waiting hawk]

Dot com bubble.

Nasdaq over 5000
Rates at 1%
Today Nasdaq is half off sale.

No it wont help.

[HLS]

In 2003 When Fed Funds Rate was 1%,
Lowest par conforming mortgage rates were 5% for 30 YR Fixed and 4.75% for 15 YR Fixed.

Today, with Fed at 5.25%, 30 YR mortgage rate was 6% on Friday. 15 YR Rate at 5.75%….

SO, a move up of 4.25% in Fed rate now equates to 1% move up in long term mortgage rates.
Of course, while the Fed rate has been fixed for over a year, mortgage rates have been higher (+ 10% swing)

Fed Rate will not directly affect long term mortgage rates.

Many remaining lenders have huge losses buried on their balance sheets. Somehow they will need to compensate for these losses to stay in business, possibly by raising profit margins on loans.

WAMU was brilliant in its marketing a few years back by offering absolutely free checking accounts, no service fees whatsoever. They attracted million of customers while BofA and others pissed people off. Now WAMU offers free checks, free outgoing wires and at least one overdraft a year free. Some banks still charge $15-$40 for these.
The more cash they have floating through their system, the more they can leverage and loan out.

For the same reason, Countrywide Bank is offering 5.65% on 12 Month CD’s and 5.50% on liquid funds for accounts over $10,000 today. Both ARE FDIC insured to $100K.

[temeculaguy]

Excellent point HLS, most people think that a fed funds rate has a direct relationship to mortgage rates. A 25 or 50 point bp drop in the fed funds rate may actually have no effect on long term mortgage rates. No matter what the fed does, rates and qualification for anything outside of conforming, fully doc’d buyers will not return to 2005. It is not the overnight rate that is funding 30 year mortgages, it is investors and they have soured on anything but old fasioned mortgages.

I visited two developments that were having advertised promotions today, they both had 5 3/8 5%down buydown programs in addition to 15%-20% price markdowns and all closing costs paid. I visited about noon Sunday, day three of the sale, not one house sold at either development. 50bp drop on tuesday is like giving a whale a tic-tac.

[patientlywaiting]

A 25bp rate cut won’t help RE but it’ll be a lifeline for the banks and improve their profit margins.

[(former)FormerSanDiegan]

Will the interest rate cut,which seems to be almost certain, trigger a upsurge in home sales and hence start pushing the price upward again?
NO

Are the realtors in this forum suddenly noticing a up-tick in sales activity?
In September ? I seriously doubt it.

Also, could it be the begining of a series of rate cuts, just the way it happened between 2002-2004?
Probably.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Just My two cents, But I think the Fed will Cut rates until the pain stops….

Where will house prices be then (who knows, but when they stop cutting the rates, I think your probably close to the bottom).

Where will the Dollar be ??? Who knows ??

Where will rates be ??? (don’t know myself).

[cr]

Ben is still in a tough spot, and the longer he does nothing the tougher it will get before he does.

He is faced with inflation and employment problems. The former says leave as is or even raise, the latter says cut.

The real problem is a decision to help one increases the problems in the other – a rate cut may help jobs (though not the mortgage related ones to any noticeable amount) but will further kill the dollar. No change will probably not be as bad as everyone thinks, but will be the scapegoat for things that would have happened anyway, i.e more foreclosures and layoffs.

I think the bottom line is what does Helicopter boy see as a bigger potential problem – weaker dollar, or slower/spending more job layoffs.

IMO, the job layoffs are coming anyway. You can’t fuel our economy for 5 years on debt, then when the source of that debt dries up, expect anything to prevent contraction.

I wonder what would happen if they raised rates – people might actually start saving money? The dollar might be worth it’s weight? Who knows.

[one_muggle]

most people think that a fed funds rate has a direct relationship to mortgage rates. A 25 or 50 point bp drop in the fed funds rate may actually have no effect on long term mortgage rates

Greenspan said as much today (see CNBC interview), also I think your comment can be extended somewhat to the short-term rates (for mortgages) since many link to LIBOR.
What effect will the BofE bailout have on LIBOR…?

IMVHO (and a touch of insider info), I think the global finance markets have much less control than they’d thought when things were humming along swimmingly, and that they are just now seeing how little control they have over the big picture.

-one muggle

[stockstradr]

Here is my two cents on the expected rate cut.

The first rate cut (August 17) was unexpected and produced a positive (but short-term) stock market response.

This week’s rate cut, is already factored into the stock market. I predict this is going to be an ugly week for the markets, without the expected similar (2% jump or more) positive stock market reaction. The only exception would be if the fed throws a wildly aggressive (full point or more) rate cut at the market.

As for how the rate cut helps the housing sector, there is almost zero relationship there. Hardly worth commenting more on that.

I remain very agressively short the stock market.

[Author]

Posts