When the fed cut rates recently 1.25% in less than 10 days, the public linked this to mortgage rates. The thinking was that because we had a rate change on the Fed Bank Rate that Mortgages would follow suit. Unfortunately that is not how the system works. It did change Heloc's and credit card rates but had the opposite effect on mortgage rates.

In January we started the year off at an average rate on a 30 year fixed mortgage at 6.07%. By mid January we were down to 5.48% and then came the rate cut. The average rate jumped up 20 basis points to 5. 68%. Overall, all of these rates are good. However don’t expect rates to decline based on the recent Fed change. In fact we may see more upward movement and possibly over 6.25% when the markets settle out.

The reason for this is Inflation. Inflation drives the interest rates more than anything else and we are in an inflationary period right now. The Government may take food and energy and things like that out of their calculation when they put out their numbers but I can not. Gas is up and so is food, and that is inflation at its finest. I don’t need a report to tell me that.

When mortgage rates are set they are based on the 10 year Treasury bill. If you want a good indicator of where the mortgage rates are going just watch this price and it will tell you what is going to happen in the mortgage interest rate market.

Since perception is stronger than fact, I believe the recent Fed Rate decrease will have a positive bump for the Real Estate market because it will draw attention to an already good rate in mortgages in spite of the slight up tick we will see. The shrewd buyer will act fast and lock in below 6% but even the late comer can expect a good rate that will provide more home for the dollar when you consider the reduction in prices and still a good mortgage rate.

Even though this is an election year don’t expect a big change in the economy. Inflation will be the biggest nemesis in the near future and the current stimulus package is a farce and not going to do very much other than make people feel a little better. I do believe we will see a pretty good move to the plus side in the housing market starting now and gaining momentum in the second quarter of this year. Prices have moved down enough, good mortgage rates and still lenders ready to lend. That all spells good for Real Estate. IMHO