Indianapolis Area Real Estate Blog

The Impact Of The Federal Reserve's Emergency Half-Point Rate Cut To 1.500 Percent

The Federal Reserve made an 'emergency rate cut' yesterday morning, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy. 

On a broad scale, therefore, we won't know if the cut truly 'worked' until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent today, too.  That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates are rising today.

The Fed's actions today sparked optimism in some corners of Wall Street and money is now flowing into the stock market at the expense of bonds. Because mortgage rates move in the opposite direction from bond demand, mortgage rates are higher this morning. 

A client here in Indianapolis saw a increase in their mortgage rate this afternoon from this morning from 6.375 to 6.5%. Granted, it's not much; but the rates are headed up. As always, mortgage markets and mortgage rates remain on edge.  Therefore, rates are subject to change.  And quickly. 

If you see a rate and payment you like, be ready to commit to it because it likely won't last long. 


#1 By Steve - Home Equity Release at 10/24/2008 0:55 PM

Buyers need to stop hanging around and start buying otherwise this thing will never turn around. Out of every downturn comes great opportunity and if all the buyers had the same attitude we would be out of this crisis much quicker.

#2 By Equity Release at 10/24/2008 3:17 AM

The economies all over the world are shady and we hope some relief in the coming year. Hope this Christmas season brings some relief

#3 By Dylan Darling at 10/11/2008 1:21 PM

Rates are on the rise. We'll see what happens, but I think rates well be up substantially by spring of 09. Buyers need to way out buying now at a lower interest rate, or waiting and hoping the market drops more and paying a higher interest rate.

#4 By Alexandria, VA Real Estate at 10/13/2008 11:50 PM

I agree with you. Possibilities are rampant right now - good inventory, motivated sellers, interested buyers. Those who are still waiting for the "bottom" may find themselves on the upside of a rising market before they know what hits them.
Michael Bergin

#5 By Florida Beach Real Estate at 10/26/2008 9:57 PM

The dangers are very real, as everyone has stated. Really can't believe anyone would let anyone else inside their home so unannounced.

#6 By Ned Carey at 10/18/2008 7:26 PM

There is a lot of money looking for a place to go. The volatility will keep a lot of that money out of the stock market My guess is rates will come down, especially if the recession reduces demand for loans

#7 By Andrea in Westlake at 10/18/2008 9:51 AM

Rate cuts are bittersweet. I think it's excellent that this will help reduce credit card interest rates, as it's an obvious fact that many Americans are up to their ears in debt right now. But it's not so great for those of us with money in high-yield savings interest rate keeps getting lower and lower. I agree though, that if you see a mortgage great rate, you should pounce on it with things fluctuating as much as they are, it's hard to tell where things are going.

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