so what does the 1/2 point drop in rates mean?

[GrilledSteezeSandwich]

Go for the bigger down payment.

Simple fact is, the less you borrow the better.

For sure..keeping my fixed monthly expenses low give me more money for fun stuff and to save. That's why I drive a base model Suburu instead of an Audi..

 

[ski_resort_observer]

The .50 drop in the Fed rate won't help your mortgages much but the .50 drop in the discount rate will. This was a two part action by the Fed....that's why it is such big news and such a HUGE surprise. I just hope tomorrow will not bring about big profit-taking.

 

[tjf67]

If they don't go into foreclosure first.

Those ARM's have been going up for months...alot of people are spooked. A steadying or minor decline in rates won't help that. Most folks will just feel they dodged a bullet.

Glad for my fixed rate.

That whole ARM thing is kinda a sham. If you cant shell out the few hundred dollars it went up then you should not have been in it in the first place.

 

[Marc]

10 year treasury is off something liek 0.001%, so that's good for mortgage rates. Not.
Mortgage rates have only been at or above the Fed target twice in the past 6 months, so effectively there's been a stealth .25 cut in place for a while. Now it's official.
Longer term effects, the dollar's going to go down faster than a two buck ho at a kneepad convention. Foreign reserves are probably going to cash in some dollar holdings, putting more pressure on.

There's a whole doomsday scenario, but I don't want to get into it right now. Bernake may have saved homeowners in teh short term by sacrificing them in the long run.

Don't mind me. I'm just pissed he blinked. I thought there was a good chance he'd hold steady until October. I can't believe he wimped out.

Well certainly he's changed his tune from "the Fed controls inflation only" to "we need to foster healthy economic growth" but from what I understand, Greenspan did the same thing, but it took Greenspan several years to evolve positions.

From my layman's point of view, I certainly didn't think the major indicies warranted a half point drop. The S&P was still up 9% YTD or thereabouts. Ironically, market stability was a reason he cited for the cut, and he sends the Dow on a 300+ point roller coster. Can't wait to see if there's a sell off tomorrow. It certainly does seem like he buckled under the pressure of media coverage of the borrower's woes.

I don't know, doesn't concern me much. Most of my market investments are market mimics with a few tweaks. I'm in it for the long haul.

 

[ski_resort_observer]

From my layman's point of view, I certainly didn't think the major indicies warranted a half point drop. The S&P was still up 9% YTD or thereabouts. Ironically, market stability was a reason he cited for the cut, and he sends the Dow on a 300+ point roller coster. Can't wait to see if there's a sell off tomorrow. It certainly does seem like he buckled under the pressure of media coverage of the borrower's woes.

Lots of the experts felt the same way. The vast majority was comfortable with the predicted .25, which was already baked into much of the stock market, and maybe the .50 cut in the discount rate as a more direct way to help the mortgage mess.

Watching an interview right after the decision with two former Fed Presidents(Bernanke is the Chaiman but the discussion is between 12 regional Presidents and Bernanke) they advised that the Fed is worried that they might be behind the curve as far a keeping the recession wolf away from the front door. The rate cuts will put more money into the financial world so the economy keeps growing.

The big brokers were the biggest winners today as they provided the money for all those crazy mortgage companies borrow from, the foundational funding of all those ARM's and especially the sub-prime loans with their infamous teaser rates. They had taken a big hit in the last few months.

They do still worry about inflation. Check out the price of a barrel of crude.

Yesterday, folks with a decent credit rating and jobs were getting shut out.of mortgages. Tomorrow they can go back to the bank or mortgage company and get the loan. Lots of company CEO's are running around the room today singing "Happy days are here again..." but tomorrow's another day.

Like you said IF there is alot of profit taking much of the gains made today will, for the moment, be given back.

 

[ctenidae]

Market indices matter little, if any at all. The important thing, and it's buried way back in the things that affect stock prices, is the ability of companies to get financing. Starting in June it has been tough, because all the sources that people have been using pulled completely (and suddenly) out of the market (hedge funds, mostly, that is). So financing became tough- and it trickles down to the mortgage market pretty quick. The Fed's 1/4 point cut in the overnight rate helped some, and was Bernake saying "I'm not going to let everyone hang in the breeze, but watch it." Then, getting several big banks to hit the window was Bernake telling liquidity providers (now banks, not hedge funds) "Fix it. Here's some help. Do it now."

They didn't fix it, and they can't, because the yield chasers that have fueled the past 4-5 years have left the market. It doesn't really matter what the Fed Funds Rate is, really. The fact is, there is less liquidity in the market than there was even 4 months ago, and it's not just in corporate debt, it's in consumer debt, too. Cutting rates makes the US less attractive to foreign capital, and may actually tell lenders it's okay to make shitty loans, be they no document mortgages or covenant light corporate debt. This is bad.

Scott Anderson at Wells Fargo is the only bank economist I have any respect for anymore, mostly because he agrees with me (even though he doesn't know it)- Bernake should have left rates alone. Let the equity market twist in the wind for a bit. Doesn't matter- the more pain that goes through now, the sooner things will right themselves. Let (hell, even encourage) a mortgage company and/or an investment bank go belly up. Countrywide is so far gone, it's going to take a hell of a lot more than BoA throwing cash at it to help, and my gut tells me Lehman's way, way over extended on its bond underwriting. Neither one of them is "too big to fail" because there's no such thing. While I hate to see any institution fail, the good of the many, and all that. Just so long as Bernake knocks some heads togeter and makes sure that homeowners and intelligent bond issuing companies don't get left exposed.

Come to think of it, this cut may be Bernake giving everyone a little breathing room before he drops the hammer. Sort of giving half a point now in exchange for a pound of flesh later. There's still a lot of ugliness poised out there, folks, and don't you forget it. The US economy's growth has been built, to a large extent, on a house of cards, and there are a whole lot of factors out there just waiting to knock it down. My advice is to take this breather and make sure your ducks are in a row. Lock in whatever interest rates you can at comfortable levels, make sure your personal budgets are tight, sock away whatever cash you can (2 month's expenses, at least), and prepare to hunker down a bit. If the shit doesn't hit the fan, sorry, you've only lost a little time-value-of-money wise. That's nothing compared to what could happen if the sky really does fall.


/ramblings of 4 beers in a Chicago hotel room. Take from it what you will. I make no promises as to the accuracy, completeness, or intelligence of anything I write. Past performance is not indicative of future results. Consult your investment professional before making any decisions.

 

[JimG.]

That whole ARM thing is kinda a sham. If you cant shell out the few hundred dollars it went up then you should not have been in it in the first place.

Oh I totally agree with you...some of these loans are really out there.

There are "super" loans out there for $650,000 or more that are ARM's. People need the extra 1000 sq ft and granite countertops that badly?

 

[hammer]

I locked in a 30 yr fixed rate mortgage at 5.25% a few years back...think I did OK?

Also, I live near a lot of those 3000 - 4000+ sq ft homes...I wonder how many families in them are nervous now.

 

[JimG.]

I locked in a 30 yr fixed rate mortgage at 5.25% a few years back...think I did OK?

Also, I live near a lot of those 3000 - 4000+ sq ft homes...I wonder how many families in them are nervous now.

30 yr 5.375% fixed here.

Would never consider an ARM.

 

[Vortex]

Exact same on deal for me.

 

[ski_resort_observer]

I locked in a 30 yr fixed rate mortgage at 5.25% a few years back...think I did OK?

Also, I live near a lot of those 3000 - 4000+ sq ft homes...I wonder how many families in them are nervous now.

You did great!

 

[tjf67]

30 yr 5.375% fixed here.

Would never consider an ARM.

I have an arm on one of my houses. Have had it since 1994. I looked in to refinancing. Probably should have but I have never been seen the cost of it go up by more than 100 bucks in any given year. As a matter of fact it resets in November and I got a letter in the mail from the bank that it is going down .09.

WHo cares what the market is doing today. If you need the money today it should not have been there. Same thing for people with real estate investments. If you planned on flipping a house in a couple of years you should have known the risk.

 

[ski_resort_observer]

Market indices matter little, if any at all. The important thing, and it's buried way back in the things that affect stock prices, is the ability of companies to get financing. Starting in June it has been tough, because all the sources that people have been using pulled completely (and suddenly) out of the market (hedge funds, mostly, that is). So financing became tough- and it trickles down to the mortgage market pretty quick. The Fed's 1/4 point cut in the overnight rate helped some, and was Bernake saying "I'm not going to let everyone hang in the breeze, but watch it." Then, getting several big banks to hit the window was Bernake telling liquidity providers (now banks, not hedge funds) "Fix it. Here's some help. Do it now."

They didn't fix it, and they can't, because the yield chasers that have fueled the past 4-5 years have left the market. It doesn't really matter what the Fed Funds Rate is, really. The fact is, there is less liquidity in the market than there was even 4 months ago, and it's not just in corporate debt, it's in consumer debt, too. Cutting rates makes the US less attractive to foreign capital, and may actually tell lenders it's okay to make shitty loans, be they no document mortgages or covenant light corporate debt. This is bad.

Scott Anderson at Wells Fargo is the only bank economist I have any respect for anymore, mostly because he agrees with me (even though he doesn't know it)- Bernake should have left rates alone. Let the equity market twist in the wind for a bit. Doesn't matter- the more pain that goes through now, the sooner things will right themselves. Let (hell, even encourage) a mortgage company and/or an investment bank go belly up. Countrywide is so far gone, it's going to take a hell of a lot more than BoA throwing cash at it to help, and my gut tells me Lehman's way, way over extended on its bond underwriting. Neither one of them is "too big to fail" because there's no such thing. While I hate to see any institution fail, the good of the many, and all that. Just so long as Bernake knocks some heads togeter and makes sure that homeowners and intelligent bond issuing companies don't get left exposed.

Come to think of it, this cut may be Bernake giving everyone a little breathing room before he drops the hammer. Sort of giving half a point now in exchange for a pound of flesh later. There's still a lot of ugliness poised out there, folks, and don't you forget it. The US economy's growth has been built, to a large extent, on a house of cards, and there are a whole lot of factors out there just waiting to knock it down. My advice is to take this breather and make sure your ducks are in a row. Lock in whatever interest rates you can at comfortable levels, make sure your personal budgets are tight, sock away whatever cash you can (2 month's expenses, at least), and prepare to hunker down a bit. If the shit doesn't hit the fan, sorry, you've only lost a little time-value-of-money wise. That's nothing compared to what could happen if the sky really does fall.


/ramblings of 4 beers in a Chicago hotel room. Take from it what you will. I make no promises as to the accuracy, completeness, or intelligence of anything I write. Past performance is not indicative of future results. Consult your investment professional before making any decisions.

:lol: wow, lots of stuff in your post. I agree with some some of your points but not with most. I too would have been happy with no cut but as Marc pointed out if he didn't the market would have tanked.

Come to think of it, this cut may be Bernake giving everyone a little breathing room before he drops the hammer.

He has no hammer...he will most likely drop the rate again depending on what happens before the next time the Fed meets.Looking down the road 6-12 months recession is a possibility, the rate cut was to reduce that risk. That's one the Fed's most important jobs.

They do also focus on inflation but it has been in the Fed's comfort range albeit the high end of the range for a long time. The last rate cute was way back in 2003 so it's not like the Fed has been pandering to the equity markets(stocks) at all, at least in my mind.

Lastly the real estate sector is only 5% of our GDP but they were worried it would spread which it has actually started to do. Yesterday the rally started out of the gate as a result of Lehman's very strong reporting numbers, announced right before the market opened.

Your major point I do agree with 100%.....the rate cut does not change the fundementals in regard to the foundational cause of the mortgage mess. I can imagine the few Countrywide guys who survived the recent cut of 12,000 jobs are thinking " the game is back on" but I hope the past year has been a good lesson and that hidden little rock on the trail in April won't appear again. Even with the rate cuts it's going take awhile before the real estate/mortgage mess settles out.

 

[tjf67]

:lol: wow, lots of stuff in your post. I agree with some some of your points but not with most. I too would have been happy with no cut but as Marc pointed out if he didn't the market would have tanked.



He has no hammer...he will most likely drop the rate again depending on what happens before the next time the Fed meets.Looking down the road 6-12 months recession is a possibility, the rate cut was to reduce that risk. That's one the Fed's most important jobs.

They do also focus on inflation but it has been in the Fed's comfort range albeit the high end of the range for a long time. The last rate cute was way back in 2003 so it's not like the Fed has been pandering to the equity markets(stocks) at all, at least in my mind.

Lastly the real estate sector is only 5% of our GDP but they were worried it would spread which it has actually started to do. Yesterday the rally started out of the gate as a result of Lehman's very strong reporting numbers, announced right before the market opened.

We are going to get a year down the road and they are going to call the summer of 07 a recession.

 

[ski_resort_observer]

We are going to get a year down the road and they are going to call the summer of 07 a recession.

A few of the experts already believe that but IMHO the motivation for those folks was mostly self interest, a subtle way to get the Fed to cute rates. Growth has been very slow for sure but certainly not in resession in my view.

It depends on your perspective. I have been watching these same guys all morning on CNBC advise more cuts, more cuts. The CEO of Countrywide with his nice deep tan(probably from hanging out on his boat all summer) was particulalry pathetic.

 

[wa-loaf]

I found this graph that charts the upcoming wave of ARM resets.

I'm fixed at 5.87% and although we kinda want to sell and move we're going sit it out for a couple years.

 

[bill2ski]

The weak dollar is the most disturbing part, especially as the Loonie gains strength.
Those darn northerners are going the be all over the slopes here in Maine, sitting outside the lodge smoking butts that smell like a brush fire and drinking labatts instead of shipyard.
THE END IS NEAR

 

[riverc0il]

30 yr 5.375% fixed here.

Would never consider an ARM.

ARMs are not all that bad if you are buying with a purpose. We considered a 5 or 7 year ARM on the condo we just bought because the condo is not a long term home but something to get us started, building equity, and into a nicer place than we could have afforded buying a house straight out. Problem is that 5 to 7 year ARMs right now are not much better than 30 year fixed so it isn't worth the risk of not selling within the fixed time frame. 5 to 7 have their time and place for the right buyers but is certainly not a good long term option.

 

[riverc0il]

Damned if you do, damned if you don't situation regarding the rate cut. Businesses and people made bad decisions. If you bail them out then they won't learn. But when it is this bad... something needs to happen to stabilize things, right? Will that 1/2 really trickle down to individual interest rates on mortgages and the like or is that more of a business win? I think in the bigger picture, there are a lot bigger problems than a few rough years economically due to some hurt from the sub-prime bust. So many people are yelling about the sub-prime headlines but where is the US dollar and still no one wants to talk about Social Security and Medicare and the beginning baby boom retirement and US debt? Short economic down turn due to bad lender/borrower decisions is acceptable and the 1/2 minimized some hurt that should have been felt. But this isn't a good beginning to a tough road regardless of what the 1/2 point means. If it stabilizes things in the market for a while so things calm down and everyone can get a grip, that is cool IMO.

 

[ctenidae]

If it stabilizes things in the market for a while so things calm down and everyone can get a grip, that is cool IMO.

That's the toruble- market turmoil has nothing to do with the Fed rate. Not directly, anyway.