Interest Rate Drop May Mean Little to Homebuyers

Home buyers (and home sellers as well) may be disappointed that the Federal Reserve's interest rate cut won't translate into lower monthly mortgage payments and a revival of the housing market.

The housing industry, now in the second year of its worst recession since 1991, erased 0.6 percent from gross domestic product in the second quarter.  Home prices are set to fall on a year-over-year basis for the first time since the Great Depression of the 1930s.

The Sept. 18th decision by the Federal Open Market Committee to reduce its benchmark interest rate to 4.75 percent from 5.25 percent doesn't mean mortgages will follow.

The Fed lowered its target for federal funds 13 times from Jan. 3, 2001, to June 25, 2003. After each cut, mortgage costs fell eight times and rose five times.

Many analysts are saying, "Lock in a rate now… long term bond yields will put a floor under how much further mortgage payments can and will go down."

What do you think?  Will the Fed's decision to lower the rate 50 basis points really make any difference in the struggling housing market?  We'd love to hear your opinion.  Just click the "Comment" link below and tell us what you think.

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