Industry News

Fed boosts interest rates: big yawn?

Real estate loan rates to remain low, experts predict

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Federal Reserve head Alan Greenspan and his colleagues hiked the federal funds rate to 4.25 percent today, the 13th increase since June 2004. With all eyes on the Fed, the burning question arises: So what? Real estate industry professionals have been wringing their hands ever since the Fed began raising the federal funds rate in 2004. They feared that as the overnight bank rate went up, so would interest rates on 30-year fixed mortgages. But interest rates on such mortgages still hover around 6.6 percent – not a high rate at all. What gives? The federal funds rate is the interest rate banks charge each other for overnight loans. Conventional wisdom says that as that rate goes up, so do long-term rates. But obviously, it ain't necessarily so. In other words: though there has long been a relationship between the bank rate and long-term interest rates, the two are not exactly locked in a passionate embrace. Maybe it's more like a cousin and an uncle. "The fact that short-term inte...