Feds most likely will drop rates 1/2%-1%
 

Its possible that the Fed could drop a key rate 1% to 0% tomorrow.
First time since 1954 that the rate could be 0%.
Personally for me this is a good thing. I have fairly sizable commercial loans on RE that are tied to the prime rate.

Does anyone on the board have an opinion on this rate cut?

Won't be long before it is a negative number!

A negative #? Is this possible?

These days, it seems anything is possible. The lowering of rates has been the life support drug for our dying economy for several years now. But of course that drug is limited. Now that the bag of tricks is almost empty . . . then what?

We have almost reached (or have already reached) the point when lowering interest rates has no impact. Look at Japan in the 90's--they had a rate of 0% and that couldn't kick-start their economy.

They won't go to zero, then they won't have anywhere to move.

Wal-Mart gift certificates?

What you talkin bout, Willis? If they have any balls, they'd drop rates to -4%, so Prime goes to minus 1%. In Soviet America, loan pay you.

The problem isn't liquidity, but solvency. Lower rates do not fix bad debt, particularly as the collateral is falling in value.

Just got an e-mail earlier today, our finance guy who we've been working with for years is offering a re-fi for our house at around 5%, no points or closing costs. We're at 5 3/4% now.
No-brainer if there ever was one.

Makes me wish I had a mortgage.

The mortgage company I use to check rates has been showing the rate on a 30 year conventional to bounce from 5% to about 5.5% daily.... I know they say the prime does not affect the Mortgage rates because they are set by traders/ investors somehow?

I find this hard to believe as the Mortgage lenders are borrowing their money from someone and it ain't the guy living next door!!!

I guess this is why I will be working for a long time coming..

Dang Sammy, pass me his # ;) I'm also at 5.75 and it might make sense to do a 15 year refi.

True. Sammy you are the man!

Can you please email me his number.:D
Sounds like you have known him a while and you trust him with your $$.

So, what does a negative prime rate actually mean? Does anyone get paid an interest for borrowing money?

As far as 30 yr fixed loans go, I would be delighted to refi at 4.5% no closing cost and points from my current 6.625%. Am I dreaming or will it happen soon?

Negative prime rate would be the cue to bend over and kiss it goodbye. The chances of that ever happening are so close to zero. If it did, you would know the end is near.

At 6.625%, even 5% would be good news. Go for it.

I'm doing a refi right now. Fixed at 4.875% at 1 point for 30 years. With the savings I'll be seeing, I can almost make double payments and reduce the time to less than 15 years.

When your only tool is water, and you have a ship on fire, you have to be careful not to sink the boat when putting out the fire.

Anybody know what a 20 year fixed is averaging? Mine is at 6%, I'd happily refi if it saved me on my overall interest and monthly payment.

I wish I lived in the US. I'd be buying more property.

Fool you say. Remmember 2008 in 5 or 10 years time. What opportunities we had.

You don't have to live here to buy property.

You can also buy property through a ETF. If you think the returns will be so great going forward 5-10 years, it seems like to me that you should load up now.

Kramer on CNBC was just saying to go buy Real Estate, rates were going to 3.5%.
:D

Hehe, the talking heads are suddenly experts on housing when they previously denied the existence of a bubble.

If this was the bottom, the homebuilders wouldn't be crying so badly and starts wouldn't be sitting on all-time record lows. The flood of distressed properties is too large and it's about to get a helluva lot worse. Oh, well...

Fed cuts prime rate 3/4% to 3 and 1/4% Yeah!!!!:D

Fed took target range to 0% to 0.25%. Actual rates were effectively there anyway, been 0.18% recently. Main signal is that Fed is done cutting rates, now fully moved on to "unconventional" tools that have long been discussed by Bernanke and others, e.g. directly buying agency debt to pressure down mortgage rates. I think also Fed wants to encourage money to move from cash hoard to investment uses, by reducing the interest rate on cash to almost nothing.

Ripped from a blog:
Saved by zero

Wonder what the prime rate was back then?

The dollar. That's the big question.

When I hear people like Kramer, I tell them to watch this so they know what's coming.

http://www.youtube.com/watch?v=shYJ_KkbzWg

We are nowhere near the bottom. Maybe by 2015 hopefully!

I don't understand. Investment banks and rating agencies said housing prices could not go down. Is this Bizarro World?

Three issues really.
1. Dollar vs other currencies (FX).
2. Dollar vs goods/services (inflation).
3. Dollar vs time (interest rates).

I'm thinking dollar holds up vs GBP and EUR currencies because UK and EU are in dire straits themselves, only other major currency is JPY and that might appreciate vs dollar, bad for Japan.

As for inflation, there is almost none to be had. Demand is plunging so hard that deflation is the worry. Think need to see demand improve - i.e. economy recovering - before see inflation as concern. At that point, hopefully Fed can pull back some of the money it has pumped into bankings system etc.

Interest rates could be bad. Not right now - everyone wants low-risk Treasuries. But when we get our risk appetite back and start selling Treasuries to buy corporate debt, munis, stocks, you've got to worry. Perhaps result is that rising interest rates mutes the economy's recovery.

IMHO

A very wise and successful investor once told me "buy when the talking heads tell you not too, sell when they say it's time to buy"


So what can we make of all this information?

It's a bit confusing isn't it!

If your smart, you invest for the long hold. If you're a gambler or need to try to recoupe some losses "day trade", if you want into the housing market for security; complete your due diligence and invest in the home that fits your budget now, expect to hold for a minimum of 7 years. Why 7 years?

That's how long it's going to take to clean up this mess!

Until banks start lending money to one another, thus starting the process of buying debt, mortgages (not MBS) and CDO's our constipated financial system will not return to normalicy...

Very sad situation now...

Well Mortgage rates of 3.5% is what got my attention.

Anyone have a chart of the M1 money supply over the last few years?

john, I don't think anyone has a clue what will happen in the next 12-18 months. Hopefully, cooler heads will eventually prevail.

I remain optimistic, but the truth is, best case scenario, we get back to our days of debt binging. We will quickly forget lessons from this crisis.

It's definitely great for qualified borrowers to lower debt servicing, but unfortunately does little to address the huge oversupply of housing, and the looming oversupply of commercial RE (retail/industrial space).

IOW, if you can refi to lower payments or have a HELOC or credit tied to Prime, you will see relief. The folks in the gutter are just flat out screwed.

My 15 year fixed is 4.625% with nine years left. I may revisit, with a 9 year loan or less. It's foolish to go back to a 15 or 30.

30 year payments start out paying mostly interest.


If you make double payments you will pay your 30 year mortgage off in 10 years, not 15!

We have a 30 year fixed at 6.00%. Anything under 5% and especially near or below 4% would be great.

When we purchased the house in late 2005, I didn't buy in to the stupid loans (not that the loan broker didn't pressure me to), but rather, used all availble monies including the left over from the sale of the previous house as a down payment.

The end result was a 30 year fixed at 6% with a loan to value around 50%. However, with the falling prices and based on Zillow (however accurate that might be), we are now hovering at 80% loan to value.

While waiting for better rates, I also risk going over the 80% LTV threshold for a conventional 30 year loan.

A 30 yr at 4.8% with one point would save us $400 / month and take approximately 1.5 years to break even

A 30 yr at 4% with one point would save us around $550 / month and take around 1.25 years to break even.

I've started the discussion with a broker as I would like to get things lined up for when I feel the time is right, however, I'm also a little worried about waiting to long...

Agreed but I'm not going to make double payments until I've stashed away 12 months worth of the savings into a savings account.

Agreed. Think it might be time to short the dollar?

I have been buying TIPS lately. I happen to think that the federal government's massive attempt to provide liquidity to the system will result in inflation. They have poured $2T into the economy, and Obama wants silly New Deal government spending.

I prefer buying before the financial instrument goes up in value. If I'm wrong, there is nothing safer than an obligation of the U.S. government.

I'd like to, but don't want to lose my shirt. I faded equities and housing, and now is a good time to sit still. Well, I am still buying equipment and hunting for RE deals that increase productivity and cash flow. The economy might go to heck, but it doesn't mean one cannot survive and perhaps even prosper.