Fed Half-Point Rate Cut to Help Home Buyers
The Federal Reserve Tuesday sliced one-half a percentage point off the federal funds rate, cutting it to 4.75 percent from 5.25 percent. It also cut its discount rate by the same amount, also bringing it to 5.25 percent.
The cuts could be a mixed blessing for home buyers, pushing fixed-rate mortgages higher if inflation worries grow, economists say.
But relief could come in other ways. Consumers should start feeling the impact quickly in the form of reduced payments on home-equity lines of credit, credit cards, and some car loans.
There is likely to be little immediate relief for borrowers with many adjustable-rate mortgages because the rates on roughly half of these loans are tied to the London interbank offered rate (LIBOR). LIBOR recently jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets.
“If LIBOR doesn’t come down, there is no relief” for many mortgage borrowers, says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.
Nevertheless, the NATIONAL ASSOCIATION OF REALTORS® applauded the Fed’s move to cut interest rates.
“We believe that the Federal Reserve Board made the right move today in lowering the interest rate,” says NAR President Pat V. Combs. “Making borrowing more affordable will make money more available and this could go a long way in helping turn around the sluggish housing market.”
Source: The Wall Street Journal, Jane J. Kim and Ruth Simon (09/19/07) and REALTOR® Magazine Online
