Mortgages - Lower Rates Mean Higher Prices & Higher Rates Mean Lower Prices

You cannot have your cake and eat it too!  For those that are looking to buy a home or real estate, now is the time.  This is the bottom. You have cheap money, and cheaper homes, and that translates into an unbeatable value. If rates rise higher, it will cost you more to carry less home.  You need ot consider a purchase before yuo realize what opportunities you had!  There is an old axiom in real estate that seems to have been all but forgotten, and many would like to sweep under a rug.  The truth of the matter is that axioms tend to demonstrate their worth.  In the boom times from where we have just emerged, low rates meant exorbitant appreciation.  We have still leveled of with very good mortgage rates that are in the low 6% range, and historically considered very cheap.  One problem that arises with lower interest rates is that they fuel inflation.  The only way inflation is curbed it to raise interest rates.  The slight bump we have seen in the 30-year fixed mortgages isn't bad at all, and I hope it dies not rise further.  But as the effects of the increased energy costs permeate the economy as they did in the late 70's, the Federal Reserve will have to curb the demand for easy money.  There is only one way to fix runaway inflation, and that is to tighten credit, by raising rates.

The most important angle of inflation is that money will be even harder to get, and here is the reasoning.  Banks do not want to lend out money at 6% for a 30 year fixed rate mortgage if the inflation rate is over 6%, or high enough to erode any profit.  The math does not work!  Banks should not be in the business to lend money at a loss, they are leaning this lesson rather quickly now, and trying to be much more prudent.  Lets all hope that the softening economy does the work for us rather than the Federal Government coming in and pushing the rates higher, that will not be good for anyone in real estate either making living, buying or selling a home.  The buyer will pay more mortgage, and qualify for less, the seller will have to get used to less money for borrowers, and deal with a lower price scenario, and for us in an already troubled business it would be better to be on sabbatical.