" " " Maine's Waterfront Real Estate News: December 2008

Thursday, December 18, 2008

Some Christmas Cheer -- Zero Interest Rates !!!

In an action that was unprecedented in its 95 year history, the Federal Reserve cut its benchmark interest rate (the rate banks charge each other) to as low as zero Tuesday, a surprisingly strong move that should make it cheaper to borrow money and pay some obligations.

The Fed hopes lower borrowing costs will entice people and businesses to spend more, helping the economy. Citing "weak economic conditions" the Fed said it expected to keep its funds rate at "exceptionally low levels...for some time to come.

For consumers, the Fed move essentially means money is now on sale. Most observers now expect mortgage rates to get to 4 1/2% next year, maybe even lower.

The Fed also cited a program it announced late last month to buy $600 billion in debt and mortgage-backed securities from mortgage giants Fannie Mae and Freddie Mac, which has already pushed mortgage rates down.

And early next year the Fed, in another previously announced program, plans to roll out a $200 billion program to boost the availability of auto loans, student loans, credit card loans and other lending to consumers.

The Federal Reserve's statements yesterday can give us all something positive to take with us over the holidays...evidence the Fed will take steps next year to drive down mortgage rates and help home sales and prices.