Fed Rate Cuts: Short-term Effect on the Long-Standing Home Loans Slump

With a recession under way or just around the bend (depending on whom you talk to) the Fed stepped up on January 22nd to try to mitigate the effects of the home loans crisis with a 3.5% drop in the current rate. Although there is debate as to the efficacy of the measure, Compete analysis showed a large overall spike in consumer traffic during the week of the first rate cut announcement in January.

During the week of January 20th when the first rate cut was announced, mortgage consumer volume rose 10% over the previous week, and an impressive overall increase of 47% since the week of December 30th. Looking specifically at refinance and purchase consumers, direct lenders Countrywide and Wells Fargo both made the most headway in attracting consumers following the announcements.

Among refinance consumers, Countrywide pulls ahead of all other lenders, receiving a 10% boost in volume over the previous week, and a 109% gain since the week of December 30th. Wells Fargo in turn boosted its purchase consumers since the week of the announcement, with a similar 10% increase since the week prior, and an overall surge of 110% more purchase consumers since the week of December 30th. Clearly the Fed’s rate cuts affected short-term attention from consumers, but how sustainable was the rate drop in counteracting the home loan decline?

So far, not very. Even after the second announcement of the .5% rate reduction, consumers had already started to pull away from investigating lenders’ sites online. Among all lenders, consumer volume plummeted the week following the last rate cut decline of .5%, losing 42% of mortgage consumers for both refinance and purchase. However, the consumer surge since early 2007 could still be considered a boon for lenders — with a 63% increase in refinance consumer volume since the week of December 30th to early January. In any event, we will all wait to see what sort of long-term impact the rate cuts may have, but evidence in the short-term proves that the decision was timely in engaging consumers to investigate their loan options.

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