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30 Year Mortgage Rates and the Federal Reserve

Dec 16 2008

The Federal Reserve cut lending rates aggressively on Tuesday allowing banks everywhere to offer 30 year mortgages at near 95 year record lows. The average rate dipped initially from 5.06% on Monday to 5.01% Tuesday. The rate banks can now lend to one another is set in a range from 0.25% to 0%. Plus the Federal Reserve continues to plan out the purchase of up to $500 billion in mortgage back bonds currently held by banks.

Expectations

Most analysts that follow the actions of the Federal Reserve were anticipating a reduction to 0.5% from 1% when the group completed its monthly meeting Tuesday afternoon. Mortgage rates had already been falling for a number of weeks but now homeowners will have an easier time refinancing their homes and buyers can purchase more home for the same monthly payment.

Markets Jump

The US indexes jumped on the news of the prime rate cut as the DOW Jones Industrial average moved from 8,680 at the time of the announcement to close at 8,924, a 2.8% move. The markets have been slowing building a technical base and could signal a buying opportunity soon. If the NASDAQ, which often leads other markets, can rise above 1,765 the indexes will continue to climb for a number of weeks.

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