The Federal Rate Cuts and You:
Housing Buyer's Market

This Tuesday the Federal Reserve unexpectedly cut the federal funds rate and the federal discount rate. The resulting resurgence of stock values (a DOW increase of more than 335 points) was headlining in almost every business section in every paper across the nation, but one thing was flying under the radar. The DOW is not the only market affected by such a rate change, in fact, it is not even the most greatly affected market.

The recent housing bubble is on the verge of a burst. With sub-prime lenders being defaulted on, foreclosures at an all time high, and now with a federal rate decrease the housing market is about to become very buyer friendly. Ex-Federal Reserve Board Chairman Allen Greenspan offered his insider’s take on the effects of such changes on the housing market. "So far, prices have dropped only slightly. But it was enough to cause alarm around the world," he said. "Prices are going to fall much lower yet."

What does this all equate to on your end of things? Well simply put, it’s a buyer’s market. More correctly put, the rate cut will affect you in the form of tightfisted savings rates and lower borrowing costs. Another hope among buyers is the possibility of the Federal Reserve Board move pushing the Libor rate down as well, which is responsible for a great many mortgage borrower (many banks lowered their housing rates by half a percentage point following the news on Tuesday). The incentive to spend is there, now if only there were a market with an abundant supply driving prices down that happened to also be greatly dependant on bank loans for customers. Wait. The housing market. That’s the answer.

As with anything economically this sale ends soon. Economists are speculating an end coming soon. The boom in investment and incentive to purchase may eventually drive back up rates. But, for now, we are sliding right down into a buyer’s market. The housing bubble may burst, and you might just see the benefits.