“…the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.”Their major concern is to protect the broader economy, not necessarily to save the real estate market. As I mentioned in an earlier post, I didn’t think that lowering interest rates would bring any new buyers into the market. As it turns out, lowering the prime rate didn’t produce a similar lowering of mortgage interest rates anyway.
Mortgage interest rates are not tied to the prime rate. They are more influenced by the bond market and inflation. The graph below shows how the rates have moved mostly unrelated over the past three years.
The immediate effect of lowering the prime rate is a drop in your credit card and home equity lines of credit rates. The drop in prime did little to lower mortgage rates, but they are still historically low. Lowering prime may help boost consumer confidence and might bring investors back, but if you’re waiting for them to drop prime again to get a better rate before buying a home, you may be waiting in vain.
