are mortgage rates going to go down?

behaviorkeltonAugust 17, 2007

So there are some talking heads on CNBC that are of the belief that the feds are going to "cut rates" steadily over the coming months.

If this is true, can we expect the miraculously low mortgage rates of a few years ago to return?

Will these cuts affect mortgage rates?

If so, what kind of cuts would we have to see in order to see a significant downturn in mortgage rates?

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kitchenshock

The Fed is cutting its short term lending rate. Technically it will only effect those things that are tied to it (ie some LOCs, VRMs, etc). You can have a situation like we did recently, only in reverse where the long term rates don't follow the short terms rates. If the demand for loans is more then there are funds available, long term rates will actually go up until they reach a yield that is deemed acceptable by the market to meet demand. Right now credit is very tight, so I would still probably bet on us seeing some higher 30yr rates in the coming months.

    Bookmark   August 17, 2007 at 6:39PM
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joyfulguy

I wouldn't bet my firstborn on such a proposition.

It's the (short-term) low rates recently that have got so many homebuyers into trouble, when, after the initial term of the contract expired, and the rate increased rather drastically, judged that there was no way that they could afford those payments.

With many such houses being put up for sale, house prices have been suffering some substantial drops in a number of markets. In many cases, the only price that will entice buyer interest is one lower than the amount still owing on the loan.

So many who can't afford the higher payments, and can't sell the house for enough to pay off the mortgage ... just walk away.

They might be better off trying hard to sell the house themselves, for the associated expenses will usually be lower than if the financial institution must foreclose, then sell it, and the possibility is that the owner can get a higher price than the financial institution.

If the lender can find the former owner, and it's getting increasingly difficult to hide, that owner will almost certainly be presented with a bill for the difference, plus the costs associated with the sale.

Not a pleasant situation.

ole joyful

    Bookmark   August 18, 2007 at 2:27AM
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steve_o

Rates for 15- and 30-year conventional (non-jumbo) mortgages are only about a point higher than they were in the "good ol' days", so anyone who didn't buy a house at a historically-low mortgage rate is not that far behind it if they're buying a house even today.

I do believe you'll see some of the more -- um -- creative financing (interest only, no down, stated income) disappear now that they have burned enough lenders and borrowers. I suspect ARMs will require better qualification, too.

    Bookmark   August 18, 2007 at 10:41AM
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sudiepav

Mortgage rates just recently were the lowest I'd ever seen since we started buying houses in 1967. Our first mortgage then was 6 1/2%. We moved a couple of times thereafter and got 6 1/2-7% mortgages. We bought in 1979 and got 10 1/2% and were glad to get it...rates went much higher. We refinanced that house several times and when we moved recently, (July 2004) we got a 5.4% rate. I don't think rates will ever go that low again. When we closed out my in-laws' estate, we found papers that said they got a 6% mtg. in 1948! People seem to panic when rates are close to 7%, but I've seen far worse. Of course even in this depressed market, real estate is pricey to the max.

    Bookmark   August 18, 2007 at 5:27PM
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