FED Lowers Rate for the First Time in 4 Years

For the first time during his tenure and for the first time in 4 years, Fed Chairman Ben Bernanke lowered the actual Federal Funds interest rate. The Fed had previously lowered the the discount rate by a similar 50 basis points, but that was largely viewed as symbolic.

Upon the announcement the stock market soared and finished the day near highs gaining about 3% across the board. More than the actual rate reduction, this most recent cut more importantly represents the Fed's willingness to do what it takes, maybe not to bail out the market, but at the very least to smooth out the current economic environment.

Lenders and Banks have tightened their underwriting guidelines in the face of an increasingly tight interest rate market because they wanted to protect themselves from future mistakes like the sub-prime lending debacle that the industry has been embroiled in these past few months. But in our opinion, it seems as if they might have taken things too far and even now perfectly good homebuyers are having difficulty in securing financing. With this rate cut, though not directly tied to mortgage interest rates, lenders should feel more comfortable about the economy as a whole and hopefully will start to ease their guidelines to bring more activity and clarity to the real estate market.

Our take is that the mortgage rates probably hit six month highs a few weeks ago and that buyers can probably start to take advantage of some of the inventory buildup that's happened over the past few months. Sellers should also breath a sigh of relief as buyers might actually be able to find the financing to buy the homes that they had been wanting to purchase as well.