I recall when the economy took a plunge in 1969 as it headed for a big recession, my JW mentor noded his head with a smile as he reminded me that 1975 is "right around the corner. Circa 1970 President Nixon had just taken the US Dollar off of the Gold Standard and interest rates started moving up. By 1973 gas prices followed suit as the oil embargos caused a delivery crisis. By 1979-1980 home mortgage rates were 16% when I bought my second home.
Armageddon was delayed as Jehovah's angels were given organizational instruction to hold the doors to the spiritual ark open just a little while longer ... to help people avail themselves of Jehovah's extreme mercy before he busted heads.
Today, June 30, 2004, nearly 30 years later ... The Fed Chariman, Alan Greenspan raised the Fed interest rate by 1/4 point, from 1% to 1.25% ... the rate banks charge each other for overnight loans. The Fed rate is most often the barometer that affects the Prime rate, that is the rate banks loan to their best commercial customers.
What about home mortgages? The Fed rate does NOT impact the home mortgage rate. However, in the event that it were, here is the impact for an average home loan:
$200,000 loan for 30 years at 6.5% means an Interest & Principle payment of $1,264.14.
$200,000 loan for 30 years at 6.75% means an Interst & Principle payment of $1,297.20.
So, the average new home buyer would have to scrape up an extra $33.06 per month. WOW! Armageddon IS right around the corner. When I bought my home in 1979 at 16%, that would translate into $2,689.51 per month payment. Now that would be Armageddon!!!
Currently, home loan interest rates are at historical lows. The 30 year average is 8.5% ... so, a 1/4 point increase is really nothing more than a slight adjustment. Also, the home interest rate is indexed to bonds and T-bills, which are free market driven, and not driven by the Fed rate to banks. Over many months there can be a secondary fallout that might affect home mortgage rates ... but, there is no real direct correlation.
So relax about the Fed rate, pay your house payment with a smile, buy that new home if you can, have a beer ... and keep on waiting for ARMAGEDDON!!!