Federal Reserve lowers the discount rate again, but why aren't home loan rates dropping?
As a Los Angeles real estate agent, I receive numerous real estate newsletters and updates; one of my favorites comes from Floyd, owner of BWA Mortgage. This is from the one I received dated 10/31:
....Yes, the Federal Reserve lowered short-term rates (the Fed Funds and the Discount Rate) a full .50% two days ago. You would think that would result in lower mortgage rates.
The Discount Rate and the Fed Funds rates are considered "short term rates". Prime rate is another "short term rate" in that the rate can be changed at any time.
When a lender makes a mortgage for 30 years, it is considered a "long term rate" meaning the lender is committed to hold that rate for a full 30 years, unlike the short term rates that can move at the market's direction. Because of that, mortgage rates do not always follow the short-term rates down.
Mortgage rates move in a given direction for a lot of reasons. If I (or anyone else, of course) could consistently and accurately predict the direction we would be very rich. I don't say that to be funny, but to put true perspective on the issue.
Rates have drifted up recently due, in part, to the market's perception of what the future holds. For example, are mortgages as good an investment as they have been historically? Is inflation a factor (inflation is not kind to mortgage rates)? Supply vs. demand and many more issues, some technical, some just the market's "feelings"....
All the Best!
Floyd
(818) 952-2726
....Yes, the Federal Reserve lowered short-term rates (the Fed Funds and the Discount Rate) a full .50% two days ago. You would think that would result in lower mortgage rates.
The Discount Rate and the Fed Funds rates are considered "short term rates". Prime rate is another "short term rate" in that the rate can be changed at any time.
When a lender makes a mortgage for 30 years, it is considered a "long term rate" meaning the lender is committed to hold that rate for a full 30 years, unlike the short term rates that can move at the market's direction. Because of that, mortgage rates do not always follow the short-term rates down.
Mortgage rates move in a given direction for a lot of reasons. If I (or anyone else, of course) could consistently and accurately predict the direction we would be very rich. I don't say that to be funny, but to put true perspective on the issue.
Rates have drifted up recently due, in part, to the market's perception of what the future holds. For example, are mortgages as good an investment as they have been historically? Is inflation a factor (inflation is not kind to mortgage rates)? Supply vs. demand and many more issues, some technical, some just the market's "feelings"....
All the Best!
Floyd
(818) 952-2726
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