The Fed and Mortgage Rates

The Federal Reserve Board announced a further 0.25% cut to the closely watched Federal Funds Rate yesterday, bringing the short-term interest rate down to 2.00%. More importantly, they also signaled that this would be the last rate cut for a while.

As has been discussed in previous posts, mortgage rates have recently been moving in the opposite direction as the Federal Funds Rate. Mortgage rates are long-term and are very sensitive to inflation expectations. The Fed’s aggressive rate cutting has fueled inflation concerns, which have been most visible in gas/oil and food price increases as the US Dollar weakened.

With further rate cuts on hold, mortgage rates should be able to stabilize at their current level.

So, the important question will be; will stabilized mortgage rates encourage buyers to delay their purchase as they wait to see if housing prices will drop further since they believe they will still be able to get an attractive mortgage rate later in the summer?

I’m not sure if this strategy will actually work in our area. While sales have slowed in most areas in Greater Hartford, the median price in some towns has remained stable, or even increased.

Only time will tell…