What is ZIRP ?? …And Why home buyers might care…

April 15, 2008

interest rate cuts and real estateEalr the “ FED “ - FOMC (Federal Open Market Committee) again slashed interest rates another 3/4 of 1 percent to 2.25%

This dramatic cut has followed price cuts of the same ¾ % on January 20th of this year from 4.25% to 3.5% and then again ½% the next day to 3%

In a span of less than 2 months the FED has cut rates from 4.25% to 2.25%

The key rate they are talking about is the discount rate ; the rate banks borrow money from the FED.

This is not directly reflected in mortgage rates which more accurately reflect the Bond (US Treasury market).

Has it helped in Real Estate here in Metro Phoenix?? This drastic move by the fed in the last 60 days has not had any significant impact on lower home Loan rates. However, Lower interest rates in other areas can allow consumers spend less on interest costs such as credit cards, car loans, etc.., leaving them with more of their income to spend on goods and services to stimulate the economy

Do we need further interest rate cuts?? FED Chairman seems to be on a cutting spree and likely continue to cut rates and probably keep cutting. However, it is a tricky game of allowing people to borrow (take on debt) to spend more to help an ailing economy.

In terms of real estate, we need further cuts to help a struggling real estate market as the 2% rate cuts have not impacted or significantly reflected in a drop in mortgage rates.

Are we headed to 0 % or ZIRP (Zero interest rate policy?)

Not since the 1930’s, (after the Great Depression) have we had ZIRP monetary policy. However, I am hearing it more and more… and it may not be that far-fetched, since we have seen rates drop 2 points about 2 months, , another 2 ¼ points over the year is not much and would get us to 0%.

What is the net effect ?? we need lower interest rates (maybe not ZIRP) to stimulate the economy,  housing and hopefully, get mortgage interest rates to move lower to stimulate the economy’ .

However, its a Catch-22, as we have to be careful not to create another Real Estate Bubble with people buying more home than they can afford with these lower rates.

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Copyright © 2008 By James Wexler, All Rights Reserved. *What is ZIRP ??  …And Why home buyers might care…*

Contact James Wexler (480) 221-8080 for all your Phoenix Scottsdale area Real Estate needs.

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Written by James Wexler · Filed Under Articles, Investing, Lending / mortgages 

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