Did the Fed give us a Trick or a Treat for Housing?

October 31, 2007

The Federal Reserve gave the economy a treat for Halloween. As expected the central bank lowered the federal funds rate, which affects how much interest consumers pay on everything from their credit cards to car loans, by a quarter of a percentage point to 4.5 percent. This is after the Fed lowered the target rate by a half-percentage point last month on September 18^th.

Before you start thinking that we’ll see more treats from the Fed in terms of rate cuts this year and you can wait to refinance or put off that new home purchase, think again.

“This may be it.” There’s no trick.

The Fed is telling us they’re probably on hold through December since today’s action to lower rates, combined with the action taken last month, should help forestall some of the adverse effects on the broader economy. After this cut on rates, the upside risks to inflation is roughly balanced with the downside risks to growth. These comments were summarized from today’s Fed meeting.

Neither Trick nor Treat

Reports out today showed consumer confidence in the U.S. fell more than forecast and home prices dropped the most in six years. Is it a good time to buy a home? You bet!

Even though consumer confidence is down, the U.S. economy grew more than forecasted in the third Quarter. Reports show increases in exports, consumer spending and business investment is up despite another plunge in home construction and home sales. In addition, Companies in the U.S. added more jobs in October up from September.

The slower housing market hasn’t showed up in less consumer spending. Consumer spending grew at a 3 percent pace. Plus the recent lows on a 30-year mortgage rate spurred a refinancing wave that pushed mortgage applications to their highest level since May of 2007, despite a small drop in demand for loans to buy homes.

In the back of everyone’s mind, people are wondering if housing will continue to be a drag on the economy. Those fears are not going away overnight.

But we had another treat today. The stock market was up. Why? The stock market was up because people are more confident that they are not going to lose their money as long as the Fed keeps cutting interest rates while the housing market is down. That is confidence!

Also Companies that trade on the NASDAQ and NYSE are very much global today with some of them having more than 50% revenue coming from Asia. The Fed cut signifies that the consumer-led US economic growth will keep going and this is supported by the strong economic data we saw today.

Overall the economic picture being painted is tricky, as the rate cuts try to infuse hope and diffuse fear. Looking at the past it’s difficult to predict if the overall economy is anticipating a recession. So many indicators are presently strong even as oil hits an all time high of $96/barrel and gold is up to $796/oz.

Homebuyers need stop being spooked by the media and consider the facts: home prices are competitive, rates are low, inventory of homes for sale in all price ranges are high and sellers are ready to bargain.

If you would like more information about my services and products, please visit www.SouthernCalMortgageTips.com or call direct at (949) 459-6888. My website offers free mortgage calculators, free reports with tips for homebuyers including tips on improving credit scores, how to buy a home with little down and terms to know when shopping for a mortgage.

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Gail P. Rogers - Mortgage Expert
Emerald Pacific Mortgage
1801 Parkcourt Place, #F200
Santa Ana, CA 92701
Phone: (949) 459-6888
Email: gailprogers@aol.com