Real Estate News – The Good, the Bad, and the Pretty

Real Estate News – The Good, the Bad, and the Pretty

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As most people expected, the Federal save did cut interest rates in September, but that doesnt necessarily average that mortgage rates are going down, too, since the two rates arent inextricably tied together. That was made apparent back in 2003, when the Fed modificated rates thirteen times in a six-month period–eight times down and five times up–without a noticeable effect on mortgage rates.

However, since consumers dont generally understand that, they tend to get suspicious of lenders when mortgage rates dont go down after a Fed rate cut. The simple fact is that mortgage rates fall and rise according to how investors feel about long-term inflation. If investors believe that inflation will be rising, mortgage rates rise in response.

According to Bankrate.com, the average fixed rate on a 30-year mortgage in mid-July was 6.82%. As of mid-September, the rate has dropped to 6.32%. It turns out that those numbers exactly mirror the half-point reduction the Fed just put into place, but its nevertheless only a coincidence, because interest rates are really responding to Americas natural market forces. When the Fed cuts rates, its really responding to declining consumer interest rates within the economy, and not the other way around, as most people believe.

The Fed rate also wont do anything concrete to stop the fall of home prices in most areas of the country. Most experts predict that home prices will continue to fall, fewer new homes will be built, and existing home sales will continue to be comparatively slow for the foreseeable future.

The people in the most difficult situation during the current slowdown are homeowners who got into their houses with little down and took out an adjustable rate mortgage. They have recently been experiencing a double whammy, seeing their interest rate increasing while the value of their homes has gone down. That method their payments have gone considerably higher, but they cant refinance their homes to make their payments more manageable.

However, the real estate news isnt all bad. Since mortgage rates are nevertheless comparatively low and home prices have been falling, more and more first-time buyers are finding themselves in a position to buy their first homes. That number includes people who have been renting while theyve been waiting for just such a price correction in the real estate market. For them, the coming months may truly be the best time in years for them to finally be able to get out of the rent cycle and into homes of their own, which they can make pretty!

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