The topic of the week has been “Why aren’t interest rates moving downward as the Federal Reserve cuts?” Well everybody is voicing an opinion on what to do and it seems that the Fed (minus our local Uptown Fed President Fisher) is pushing ahead to cut rates further. Steve Brown from the Dallas Morning News wrote a brief story today on Mortgage Rates providing his own ideas on why they are not falling. What have mortgage rates done in the last 9 months? Well the national average on a 30yr fixed rate mortgage has actually risen from 6.39% in May 07 to 6.42% in Feb 08 according to HSH Associates (a publisher of national mortgage rates).
So we have the Federal Reserve cutting key rates and the consumer mortgage rates rising, hmm? The details are sticky but the reality is simple mortgage rates have moved around some in the last 3 quarters but are basically flat. Does the Fed know what it is doing or are the markets acting in their own best interest due to higher mortgage defaults? More questions more detailed economics but the bottom line gets to this, the cost to get a loan hasn’t changed in 9 months but the cost of living e.g. Inflation has risen dramatically – Food and Energy – we can’t live a single day without spending money on either on of those 2 items and they keep getting more expensive. The government likes to quote inflation rates minus these 2 variables because the do rise and fall more than other variable but the reality is they are persistent costs for everybody everyday. If they go up people can afford less for their mortgage, whether they are buying a new house or paying for the one they already own.
The good news is interest rates are still near historic lows, the Uptown market is still slightly more of a Buyer’s Market and building has slowed allowing for supply and demand to even out.
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