Real Estate

Real estate news: the good, the bad and the beautiful

As most people expected, the Federal Reserve cut interest rates in September, but that doesn’t necessarily mean that mortgage rates are going down as well, as the two rates are not inextricably linked. That became apparent 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 generally don’t understand that, they tend to be suspicious of lenders when mortgage rates don’t go down after a Fed rate cut. The simple fact is, mortgage rates go down and up depending on how borrowers feel. investors regarding long-term inflation. If investors believe inflation will rise, mortgage rates rise in response.

According to Bankrate.com, the average fixed rate on a 30-year mortgage in mid-July was 6.82%. In mid-September, the rate fell to 6.32%. Turns out, those numbers exactly reflect the half-point reduction the Fed just implemented, but it’s still just a coincidence, because interest rates are really reacting to the natural forces of the US market. When the Fed cuts rates, it is actually reacting to lower consumer interest rates within the economy, and not the other way around, as most people believe.

Nor will the Fed rate do anything concrete to stop the decline in 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 remain relatively slow for the foreseeable future.

The people who find themselves in the most difficult situation during the current slowdown are homeowners who broke into their homes with little money and took out an adjustable-rate mortgage. They have recently been experiencing a double whammy as their interest rate rises while the value of their homes has dropped. That means their payments have increased significantly, but they cannot refinance their homes to make their payments more manageable.

However, the real estate news is not all bad. As mortgage rates remain 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 waiting for that price correction in the housing market. For them, the next few months may be the best time in years for them to finally get out of the rental cycle and have their own homes, which they can make pretty!

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