Real Estate NewsBy SAMUEL of Moneyvally.com
As most people expected, the Federal Reserve did cut interest rates in September, but
that doesn't necessarily mean that mortgage rates are going down, too, since the two rates
aren't inextricably tied together. That was made apparent back in 2003, when the Fed adjusted
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 don't generally understand that, they tend to get suspicious of lenders
when mortgage rates don't 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 it's still only a coincidence,
because interest rates are really reacting to America's natural market forces. When the Fed
cuts rates, it's really reacting to declining consumer interest rates within the economy, and
not the other way around, as most people believe.
The Fed rate also won't 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 relatively 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 means their payments have gone significantly higher, but they
can't refinance their homes to make their payments more manageable.
However, the
real estate news isn't all bad. Since mortgage rates are still relatively 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
they've been waiting for just such a price correction in the market. For them, the
coming months may actually 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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