If a Quarter Point FED cut wasn’t enough then now what for the Mortgage Market?


The Federal Reserve Tuesday announced that they would act in the form of a Quarter Point Rate Cut for the last action of 2007. Investors on Wall Street had anticipated a half point cut and showed their disappointment by punishing stocks and driving the 10yr bond yield higher (actually lowering the yield and consumer borrowing rates, opposite of the history of the past two rate cuts). So why did the market waiver from their initial sell off of stocks and then today and drive stocks higher yesterday?

Today’s market was indeed volatile moving a full 380pts from its high to low and money flowed right back out of bonds and into stocks, driving consumer interest rates right back up. What does all this mean to us in the Pleasanton Real Estate community and the whole Bay Area Real Estate market in general?

Well, it means that the FED is making the lending of money more challenging for the near term. They did open some new doors for first time ever bond auctions which may help liquidity in the market. The bond auctions will help the extension of consumer loans without larger Fed cuts creating a better inflation environment.

Now let’s tell it how it is for us in the Real Estate community… rates are good. They will remain at the same levels for the remainder of the year. Stocks won’t be strong because of their tantrum caused by Bernanke. Because they “the market” didn’t get what they want “, the half point cut”, we should see investors timid and keeping funds in the safety of bonds for the remainder of 2007.

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