Wednesday, March 18, 2009

Fed to Promote Lower Interest Rates

The Federal Reserve announced Wednesday it will spend up to $300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt.

"This is not only going to keep mortgage rates low for a long period of time," said Greg McBride, a senior financial analyst at "The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days." [Source]

Recovery may not be far away if interest rates fall from their current levels around 5.25% for a jumbo-conforming loan, a 37-year low. In Los Angeles, loans between $417,000 and $729,750 are characterized as jumbo-conforming for a single family home or condo.

The current flurry of sales activity on the low end, where sales are rising dramatically, will then move up the real estate ladder and prevent prices from cascading downward.

With the Fed's increased purchases of mortgages sold on the secondary market, interest rates for jumbo loans (over $729,750 in Los Angeles) should also come down. In this (hopeful) scenario, the Los Angeles real estate market, from Westside to Eastside, would get some legs.