IMPORTANT SERVICE ANNOUNCEMENT! The Federal Reserve lowered the Fed Fund Rate to ZERO today and will spend $800 Billion in funding to keep rates lower. This does not mean mortgage rates will fall 1% tomorrow.
It is a common belief that when the Fed drops the Fed Fund Rate, mortgage rates also fall. That is not the case. The Fed directly impacts short terms rates. Just a few weeks ago, the Fed dropped the Fed Fund rate .25% and this past week, we saw rates increase over .75% in rate in one week. It was one of the quickest increase of rates in a 5 day period. There are many other factors that go into mortgage rates that I will share in another post.
Check out the chart below that tracked 20+ years of the 30yr fixed rate vs. the Fed Funds Rate. The rates have differed by as much as .5% to 5.25% in rate and were not directly impacted by changes.
The $800 Billion in Funding is the thing to watch as they are spending $200 Billion to directly buy mortgage backed securities to keep rates low. This does not mean rates will drop to 2% tomorrow. Trust me, I wish it would! There is a huge demand versus capacity issue with banks and mortgage lenders. $11 trillion of loans need to refinance, but the industry at max capacity can only service $2 trillion.
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IT TAKES A VILLAGE!