Tuesday, March 18, 2008

Implications Of Fed Rate Cut

After some see-sawing, it appears that the market likes today's 3/4 point cut in both the fed funds rate and the discount rate (note that the discount rate was also cut 1/4 point on Sunday night). At this hour, the major indices are all showing better than a 3% rise, and the Dow Jones Industrial Average is better by 500 points from yesterday's low. While Wall Street may be giddy, we know how quickly things can change- just ask Bear Stearns. At this point as it relates to NY Real Estate we have 2 opposing trends. On the negative side, we can expect significant job cuts on Wall Street (Bear will likely lose 7,000 jobs-half their staff), and Wall Street bonuses should pale in comparison to the past 2 years. On the plus side, if the fed is successful in bringing meaningful liquidity to the markets, we should see a significant drop in mortgage rates. Also, the dollar is exceedingly cheap, and with the market expecting another 1/2 point cut in rates by May, it is likely to stay cheap, if not get cheaper. As I mentioned before, the key here for our real estate market is a drop in jumbo mortgage rates. With a significant drop, say from 7% to around 5.5%-5.75%, the New York market, with it's limited supply, would likely see prices begin to appreciate once again. But, don't get too excited by the big rally on Wall Street. You can be sure that there are lots of shorts who are covering here, and despite short term jubilation, we still need to be weary of another Bear Stearns type debacle.

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