On the front page of today's paper was the following headline: "Fed Rate Cut Pumps Up Economy". If you believe like I do, that a great deal of our economic woe lies with our stagnant real estate market, this headline is good news. Or is it only good press?

For several months I have been trying to drive home one very simple fact: It isn't RATES that are keeping buyers from buying real estate. Lower rates do nothing to resolve 3 important issues that have placed a stranglehold on buying and refinancing property:

1. Far more restrictive guidelines in order to qualify for a mortgage or a refinance, thus eliminating thousands of potential home buyers...no matter how low rates become
2. Declining values that are playing havoc with new loan applications and are rendering refinances impossible for a vast number of homeowners
3. The unmistakable market mentality that things will go "EVEN LOWER" keeping investors and potential homebuyers alike waiting on the sidelines.

All of these issues are tied together so tightly that a kind of loop is created.  Tighter restrictions mean less people can buy houses. Less people buying houses means demand is low and prices drop. Lower prices mean more people face foreclosure  (as they are unable to refinance out of adjustable rate mortgages or tap their equity). More foreclosures mean the continuation of restrictive lending guidelines.  Troubled homeowners create negative press.  Negative press creates a negative market mentality, leading to even fewer buyers.....and the loop keeps going around.

Does inserting lower rates into this loop stop us from spinning? Lower rates do create some positive press, as well as lower payments for those with equitylines and adjustable loans that have outlived their fixed term. But what does it do for all of those borrowers locked out of buying due to tighter guidelines? What does it do for those who continue to wait and bet on things going lower?

We already know from Economic 101 that we must have more buyers in the market before prices go up. But if appreciation is what will cause the market to awaken, will that come from lower rates alone?

Why isn't the phone ringing off the hook at mortgage offices for refinances? Don't people still need money out of their houses? They also have been cut off at the pass. Here's why:

1. They have no equity because they originally did a high loan to value transaction (90%-100%) and/or they have no equity due to the home going down in value
2. If they DO have equity, current rates are STILL not lower than they were several years ago when they took our their last loan
3. They can no longer qualify because they did a stated income loan that has been eliminated as a result of tighter lending practices.

The fix for an ailing economy is circulating money. Money circulates when real estate is sold and when real estate is refinanced.

When values are on the rise again, you will see most of these issues melt away. The sleeping giant will awake, and once again, money will begin to pump through our starving economy. But what will it take to get there?

Probably, more than one bone. Even so, we'll take it, and we're gnawing.

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