Tuesday, August 7, 2007

Bernanke and the Fed

So the Federal Reserve Board has kept interest rates at 5 1/4% with no sign of dropping them for the near term anyway, which will more than likely be for the rest of 2007. If there's any good news from the Fed's August 7, 2007 meeting, it's that they didn't raise rates, which I say with my tongue firmly planted in my right cheek. So what does this all mean for the real estate consumer? Frankly, very little. It means the Fed is worried about a slight upswing in inflation, even though employment remains high and economic growth nationally is still solid. Our economy, nationally, is still humming along.

It's surprised me in my years in real estate, how many people think that mortgage interest rates are based on what Alan Greenspan and now Ben Bernanke and their colleagues do with the Federal Reserves interest rates. But such is not the case. That 5 1/4 rate that the Fed held steady at, is what the Federal Reserve charges other U.S. banks to borrow money from them. If you want the real barometer on what's happening with mortgage interest rates, keep an eye on the 10 year, U.S. Treasury note. It's rate will always be your basic rate for a 30 year fixed mortgage.

Yes, what the Fed does is important, because it shows what they feel about the U.S. economy, not the home mortgage market. So the next time you hear someone touting on radio or TV "better get your mortgage now, before the Fed raises interest rates," pay little heed to what they're saying. One thing I do know for sure right now, when it comes to mortgage rates, you're better off with a 30 year fixed than with anything else. And this final note, for those who think house prices are not dropping. My next door neighbor in Troy closed on his house last week, selling it for $178,000. 4 years ago, he paid $201,000 for it and it's a beautiful home!

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