The June 16 issue of Newsweek Magazine, in their "Inside Business" section, helped me to finally understand why our mortgage interest rates are not falling when the Feds have brought their rate down to 2%.
They explain that the financial system is supposed to work like a tube, transmitting interest rates. Banks borrow from the Federal Reserve and pass through lower costs to customers and the market at large. But today banks are acting more like dried sponges, absorbing the liquidity the Fed is providing in order to make up for losses and shore up their balance sheets, rather than releasing the cash into the economy. That certainly explains why 55% of commercial banks are tightening lending standards, up from 30% in January.
Rates on conforming 30-year mortgages have only fallen slightly since the Fed began cutting rates (from 6.4% last September to around 6.17 now) and jumbo loan rates haven't budged at all.
2 comments:
Yes, really. I agree with told all above. Let's discuss this question. Here or in PM.
Two years later it's still pretty accurate.
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