Benefits Of The Fed Rate Cut For The Housing Market And Borrowers

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This ARTICLE On The Benefits Of The Fed Rate Cut For The Housing Market And Borrowers Was PUBLISHED On August 1st, 2019

Benefits Of The Fed Rate Cut
Gustan Cho Associates

Benefits Of The Fed Rate Cut: Federal Reserve Board Chairman Jerome Powell announced on Wednesday, July 31st, 2019 the Feds will be cutting interest rates by 0.25 basis points.

In this article, we will discuss and cover the Benefits Of The Fed Rate Cut. How does this affect the housing market? Will the Benefits Of The Fed Rate Cut further lower interest rates in the coming months? Will the Feds continue to cut interest rates going forward?

News Of The Feds Interest Cut

News Of The Feds Interest Cut

The Feds announced a quarter basis point interest cut on Wednesday, July 31st, 2019.
  • The announcement was expected
  • The interest rate cut by the Federal Reserve Board is the first cut since the Great Recession of 2008
  • There are mixed emotions of the news by industry experts and economists on the impact and benefits of the Fed Rate Cut and its impact on mortgage rates and the housing markets
  • In general, there are many benefits when the Feds cut rates. Rate cuts normally yield lower mortgage rates
  • The 25 basis point rate cut will drop interest rates from 2.25% to 2.5% to 2.0% to 2.25%
  • The Federal Reserve Board announced earlier this year they will not increase interest rates
  • In 2018, the Federal Reserve Board had four interest rate hikes
  • There were talks the Fed will be cutting interest rates for many weeks
Alex Carlucci, a senior vice president at Gustan Cho Associates and a housing market expert, issued the following statement:

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability,” the Federal Open Market Committee said in a statement. “In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2.25 percent.”

After raising interest rates last year, economic growth has seen a slowdown. However, inflation remained the same. The U.S. Labor markets are still strong with historic record unemployment numbers.

Alex Carlucci further states:

The Federal Reserve Board’s concerns about our economic outlook and the long lag time between lowering rates and seeing effects in the real economy were key drivers of the decision of cutting interest rates.

Carlucci feels the interest rate cut on Wednesday, July 31st, 2019 will benefit mortgage borrowers. He strongly believes mortgage rates will drop in the coming months into 2020.

Anticipation Of Lower Mortgage Rates

Anticipation Of Lower Mortgage Rates

Mortgage rates remained unchanged on Wednesday after the news of the 25 basis points rate cut.

  • This is because the mortgage markets were already expecting the news by Fed Chairman Jerome Powell
  • Further hints by Chairman Powell need to be leaked out about the Feds further decreasing interest rates for the mortgage markets to have an impact

Alex Carlucci said the following:

In order to see further declines in mortgage rates from this point, Chairman Jerome Powell would need to give clues about further potential cuts, which seems unlikely given the strength of the current data. Homebuyers can enjoy today’s low rates without fearing they’ll regret a purchase today because tomorrow’s rates will be lower.

Massimo Ressa, of GCA Mortgage Group., has conflicting views than Alex Carlucci’s. Massimo Ressa issued the following statement on Wednesday after the Fed Rate Cut Announcement:

From the perspective of real estate, if the Fed’s policy move has its intended consequence of boosting inflation and maintaining the expansion of the economy, we should actually expect to see mortgage rates increase. A rise in mortgage rates could further impact an already slow housing market, as first-time homebuyers struggle with affordability. Increasing inflation and growth expectations will likely result in upward pressure on 10-year treasury yields after months of declines.  Mortgage rates remain low by historical standards but affordability remains a challenge, especially for first-time homebuyers in coastal markets. Rising mortgage rates could put a damper on an already slowing housing market, but the continued expansion of the economy and incomes are going to be the real drivers of the market.

Benefits Of The Fed Rate Cut: The Bottom Line

The Bottom Line And What This Means For Homebuyers And Homeowners

Mortgage rates today are at a 3 year low. Back in 2013, rates on 30 year fixed rate mortgages were as low as 3.25%. Borrowers who closed on their mortgages in 2018 got rates at an all-time high since the 2008 Great Recession. The Federal Reserve Board increased rates four times in 2018. Many borrowers closed their home loans at over 5%. Today’s mortgage rates are at 3.75% for prime borrowers without any Loan Level Pricing Adjustments (LLPA). Most borrowers who closed on their home loans in 2018 should get a net tangible benefit by refinancing their home loans today. For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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