Sunday, April 27, 2008

How Does the Fed Rate Cut Affect Homebuying?

The Federal Reserve cut interest rates today for the seventh straight time since September of 2007. Many experts believe that the Fed is done cutting interest rates and will begin a new watch-and-wait policy. This new policy is due – in part – to the fact that the first Stimulus Act rebate checks are hitting millions of mailboxes this week. The Fed hopes this money will give a much needed boost to the national economy.

The cut took the federal funds rate, the key overnight rate at which banks loan money to one another, to 2%. It had been at 5.25% as recently as September, when the Fed started slashing rates in an effort to spur the economy and keep the nation out of recession.

Rich Yamarone, director of economic research at Argus Research, doesn't think rates will go any lower. He believes the Fed's next move will be to raise rates to combat building inflationary pressures. He indicated that the Fed might start raising rates as soon as December.

So how does this Fed cut affect the Las Vegas homes market?

Hopefully Las Vegans will take this to heart and start to plan accordingly whether they are planning to purchase a new home or if they are considering refinancing their existing one. The following points are important things to take into account:

  1. Today's tougher housing market means there are some great buys to be had if you're looking to purchase. This is an especially friendly market for first-time home buyers.
  2. The government has temporarily increased FHA loan limits in many areas across the US. These government-insured loans are not FICO-score driven and require little to no down payment. Here's the catch: these new limits expire at the end of the year, so you must act now.
  3. You really don't want to play the waiting game if you are holding an adjustable rate mortgage (ARM). That's because there is nowhere for the rates to go but up from here, if we are truly at the end of the Fed's cutting cycle.

At the quarterly Crystal Ball Seminar last Thursday, consultant Steve Bottfeld with Market Solutions was bullish on the Las Vegas real estate market, and said the median price for new homes, including high-rise condos, will be up 8 percent to 10 percent in 2008. He predicted a window of opportunity to buy at the bottom of the market through October or November of this year and then saw prices stabilizing and starting to trend upward again.

Not only are there currently lots of deals on Las Vegas foreclosures and auctions, Larry Murphy of Salestaq identified 15 Las Vegas new homes subdivisions with a variety of models priced at less than $100 a square foot, led by Richmond American's 3,839-square-foot home at Vienna for $319,990, or $83.35 a foot.