Federal Reserve Cuts rates .25 bps.  How will mortgage rate respond?

Now that the widely anticipated rate cur for October has occurred how does the market respond?  The first over all response is that oil topped off at over 94.00 a barrel.  However, that price is driven by market speculators who will soon be burned when the bubble on oil burst and goes down to 60.00 a barrel in short order.  Although, the economy is not out of the woods just yet, In the weeks and months that precede this rate cut turmoil in the financial markets still exists.   For one the LIBOR rate which is the rate banks loan to each other is still at extreme levels, since  banks typically have inside knowledge this rate spread between treasury's and LIBOR (London Interest Rate Over Night Lending Rate) is still troubling to say the least.  Couple this with a declining valuation in home prices still means the bottom may not have yet been achieved.

In a positive note rates are once again going lower than the previous high of this summer at 7.0% and the liquidity crisis that griped the housing market is loosing.  This will bring with it opportunity for the home buyer who is positioned to take advantage of the lower than expected home prices.

How low is a home price going to go is anybodies guess?  Predictions range from 10-15% from 2006 levels.  However, home prices are a market to market situation and in Hampton Roads, Va home prices are expected to hold their value given the relative economic wage increases and low taxes which tend to attract high quality jobs.  However, in many markets across the country as in Florida and Southern California home prices are declining in excess of 40% of 2005 price levels.

In retrospect we have learned a lot from the business models of brokers and the predatory nature of sub prime loans.  Expect to see a return to traditional lending standards as we move forward into 2008.  Currently rates are approaching 6% with an opportunity to go lower. 

Michael Mapes can be reached for comment at 757.599.1810 ext 225 or on the web at http://www.theresponsiblemortgagelemder.com/