Orlando Real Estate News

On December 16, the Federal Reserve Bank announced an interest rate cut to a range of .25 percent to 0 percent. This remarkable adjustment means the prime rate will drop to 3.25 percent. The Fed made this move to encourage banks to loosen their tight grip on money and stimulate the economy by providing loan funds for homes, cars, business financing, and personal credit accounts. This is welcome news to home buyers and sellers in the Orlando, Florida, area. Conversely, by reducing the rate paid for savings accounts and certificates of deposit, the Fed hopes business and consumers will borrow more and spend more, pumping money back into the struggling economy.

The lack of confidence in the current economy has resulted in banks clamping down on the flow of money. In his article for U.S. News & World Report, Luke Mullins quoted the Fed's Open-Market Committee, as saying, "Financial markets remain quite strained and credit conditions tight." This is evidenced by the decline in business investments, industry production and consumer spending. Ben Bernanke, Chairman of the Federal Reserve System, led the Fed's Open-Market Committee to this latest rate cut through his philosophy of throwing everything, including the kitchen sink, at the current recession to support a turnaround by keeping the rates low for a long time, at least until growth returns and appears to be on a stabilized upward trend.

For businesses using credit to pay bills and make payroll, an influx of money and a reduced interest rate could make the difference between staying open or closing their doors. Personal credit card holders whose interest rate is based on the prime rate may see a reduction in their monthly finance charges which could help their strained budgets. Likewise borrowers with Home Equity Lines of Credit (HELOCs) using prime as a benchmark may also experience some relief, although some of those borrowers have a cap on their minimum rate and may already be making the lowest payment permitted by the terms of their mortgage contract.

How does a cut by the Fed benefit home buyers in the Orlando area?
Surprisingly, there will be little effect immediately on 30-year fixed rate mortgages as those rates had been dropping steadily, and home loan rates are influenced by factors other than the prime rate. What may be more important is the "kitchen-sink" attitude of Ben Bernanke and his determination to solve the "crisis of confidence." According to Bankrate.com, under Bernanke's leadership, the Federal Reserve plans to print more money--billions of dollars worth--to buy up mortgage-backed securities. Along with committing to keep rates low for an extended time, the Fed is considering purchasing Treasury bonds and notes; accepting corporate bonds, mortgages and commercial paper as collateral for bank loans; and buying corporate bonds. The goal is to boost confidence during these trying times, by supplying ample capital to banks so they open the gates and lend to other banks, consumers and businesses. A flood of money into the market, coupled with reduced rates for business loans and credit cards, could reassure consumers who are concerned about job cuts and budget woes. Any reduction in the perception of a worsening economy may spark potential home buyers to take action now while real estate prices in the Orlando area make it one of the top ten bargain markets (as rated by Forbes.com), and mortgage rates are at their lowest level in years.

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