Even Lower Mortgage Rates

During the 1990's, the Fed reduced the federal funds rate by a total of 313 basis points. Thirty-year mortgage rates declined by 256 basis points during the same period, representing an average spread over the federal funds rate of 317 basis points. As indicated earlier, the Fed has reduced its target federal funds rate by 449 basis points in the last three years. Residential mortgage rates, however, have not yet fallen proportionately. Mortgage rates have fallen from 8.21% in 2000 to 6.26% today, a decline of 195 basis points, representing a current spread to the federal funds rate of 452 basis points. The following graph illustrates the spread between the Fed Funds rate, the 10-year US Treasury and 30-year mortgage rates from 1995 through 2006 (projected).