What the rate cut means: A dissenting opinion

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(Note: this is an edited version of an earlier post) A reader e-mails to disagree with my earlier post minimizing the impact of today’s rate cuts on mortgage rates. That post quoted CNBC’s Diana Olick, who wrote, ‘I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries. ... Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now. Today’s rate cutdoes affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market...’

Now the dissenting opinion: ‘The lender I work with at Bank of America in Glendale told me this morning that she is reducing the interest rates for the pre-approved buyers I’m working with .25%.’ In other words, the rate cut meant lower mortgage rates immediately.

Further, the dissenter points to this article in USA Today, which also points to immediate benefits of lower rates in the mortgage market: ‘The Fed’s rate cut will also give the biggest boost to borrowers with variable-rate mortgages, says Keith Gumbinger, vice president of HSH Associates, which tracks mortgage rates. Home equity loans, which are typically half a percentage point above the prime rate, should fall to about 7% from an average 7.74% the first of the year, he says.’

Why the edited version? A reader observed the illustration for the original post was ‘too tasteless’ -- not just a little bit tasteless, like the earlier discussion here about ‘dead cat bounce,’ but too tasteless.
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