Great News on September 18!

On September 18, the nation watched and waited for the Federal Reserve Board to make its anticipated quarter-point cut on the short-term interest rate. Much to everyone’s surprise and delight, Ben Bernanke, the Federal Reserve Chairman, announced that rate was being cut by a half-point, from 5.25% to 4.75% — twice what was originally expected!

Not only was this a sound economic move, it was a good decision from a psychological standpoint as well. The markets are directly impacted by what the Fed does, and they are also driven by what people expect it to do. With the rate cut and the resultant positive jolt to the economy, the resulting momentum should keep it heading in the right direction.

On the real estate side, following the recent Federal rate cut, major lending banks lowered their prime lending rate from 8.25% to 7.75%. This will benefit people with home equity lines of credit and credit card owners. Even though it shouldn’t be viewed as an overnight miracle (we’ll need to employ a little patience while everything adjusts), it bodes well for great things to come. For our businesses, it will increase production and hiring, and therefore people’s income. More income means more spending and the general economy is stimulated as a result.

The news also sent the stock market soaring as investing confidence increased. The unexpected half-point cut, as opposed to the expected quarter-point cut, really propelled Wall Street. However, financial advisors are still counseling their clients to invest for the long term. There is a possibility that we could see another cut before the end of the year, depending upon the result of this one. Also, the market response and what subsequently happens to bonds is more closely tied to mortgage rates. That’s where we come in!

As real estate professionals, we are particularly pleased at the positive impact this wonderful news will ultimately have on the real estate market and its effect on other commerce. Although the September 18th rate cut is only indirectly tied to mortgage rates, it should eventually translate into less expensive loans and greater ease of qualifying for them.

This will all take some time because of the trickle-down effect of the newly strengthened economy. It’s great to know that the government is sending a strong, positive message and is behind us when we really need them!

www.TheMMTeam.com