Market Conditions Update - What the Fed rate cuts mean for you
March 25th, 2008 by AptBldgTrader“The Fed just issued another cut, so mortgage rates should go down right?” That’s a question I have been getting a lot lately.
The answer is not a clear Yes or No.
Most mortgages are originated at banks, which in turn sell them to secondary markets. Therefore, the ultimate factor for what rate borrowers pay is investor demand for mortgaged-backed securities – and that demand is influenced highly by fears of long-term inflation. In simply terms, if investors think inflation will accelerate, mortgage rates (and other long-term interest rates) rise.
So what’s going on with the market right now?
Well, it’s no secret that this country is in the middle of a credit crisis. And while the Fed’s recent rate cuts may help stave off a recession, they have also increased fears of inflation. So under these conditions, more big rate cuts by the Fed could actually mean higher mortgage rates.
But it’s not all bad news. Recent actions by the government to help struggling investment banks, and its move to reduce the capital requirements of government-backed mortgage lenders Fannie Mae and Freddie Mac, has helped drive mortgage rates lower.
It’s important to keep in mind that mortgage rates are still at historical lows – and many stand to gain from falling real estate prices. Bottom line: if you are a qualified borrower, now is the time to get some great deals on real estate.
Here is a summary of multifamily rates (5+ units):
3-year fixed: 5.5%
5-year fixed: 5.7%
10-year fixed: 6.15%
$500,000 & up
30-year term/30-year amortization
~Sam Nelson, Venture West Funding: Website