I have a freind who is trying to sell his house here in the DC region. A few weeks ago I asked him if anyone had made an offer, and he replied in the negative. But, he continued, since the Federal Reserve would be meeting in two weeks and would likely cut interest rates, no one in their right minds would make an offer now.
I admit I am getting more cynical with age, but his view seems to me to be…optimistic about the depth of knowledge of the average home buyer. I freely admit when I bought my house the timing was driven by my need to move before the semester started. I just shopped around for the best rate I could get at the time, without much thought about the Federal Reserve board. Did you or your friends and family pay attention to such things? Which one of us is hopelessly naive, me or my friend?
I actually talked to a mortgage loan officer the day after this latest Fed rate cut, and I ask him about this. I’ve been working with this guy for 8 years now, so I trust his answers.
His answer: The industry has assumed that a Fed rate cut was in the works for quite a while now. Any mortgage rate cuts have been already worked into the equations.
His answer seems to match up with the fact that I haven’t seen rates come down this week.(Our house will go on the market this fall, so I’m starting the shopping process). In general, 30yr home mortgage rates are not tied exactly to the current Fed rates. They are also based on where the lenders think rates are going to go in the longer run.
And to answer your question: No. Any foreseen rate cuts have already been factored in, and I’m not going to try to guess at unforeseen rate changes.
Yeah, but they were expecting a quarter drop in the Fed rate, no? I thought the markets had already priced in the quarter drop, but not the half point drop. I am pretty new to all this, so somebody please clarify.
The Fed rate cut really only affects short term interest rates, it’s effect on 30 year mortgages is virtually nil and can often mean rates will rise, anticipating inflation.
Would it affect FHA loan rates? When I was buying my house, the realtor had me work with their financial consultant before showing me any houses. Since I qualified for FHA, the consultant set it up. There were three opportunities to set the loan %: at the time of initial application, at the time of finalizing, and one random time in between. I can imagine people waiting just a bit to get the final % locked at the lowest rate.