Fed cut rate, will house value drop or climb?

[sac25274]

Hi I live in the state of California. A few days ago, the news reported that the Fed had cut rate to another half point. Can any one tell me if this means that homes value will not drop anymore or will prices of homes begin to increase soon? Is this the right time to buy if you're an investor? Your responses would be appreciated. Thank you in advance.

[fractional-homes]

The home prices are determined by many factors, especially the housing condition in your local market. The rate cuts do not have any immediate impact on home prices. If you have 20 homes on the market for every buyer, some homes will not sell, then the increased inventory will drive the price downward.

The rate cuts affect mostly short-term interests, while leaving the long-term interest untouched. Mortgage rates go with the long-term rates.

[CGjerdetu]

The short term problem will be the continued influx of foreclosed homes coming back on the market. Until they all clear the system, it is unlikely that prices will stabilize and in my opinion, they will likely continue to fall.

There are still definitely buyers out there and will act quickly when they identify a well priced property. If priced right some of the bank-owned homes are getting multiple offers.

I think that the proposal to raisenthe conforming loam limits would help the market both with sales of new homes and allowing some home owners access to less expensive financing.

[thedeallocator]

Rate cuts and raising the maximum loan amounts for conforming loans may actually help sellers of homes priced more than $400K, as there will be more buyers out there who can qualify for to buy homes in this price range (Assuming that the rate cuts also lead to a fall in mortgage rates). More buyers mean higher demand and prices/values tend to go up with higher demand.

[steve111111]

Hi,
Thats a question of the risky type. Basically prices tend to climb when interest goes down, but it really depends on the area and other factors. So many unpredictable things, no one will give a very good answer.

Steve

[chrishummel]

Rates being cut can help depending on your local market. If someone is on the fence waiting for rates to drop it might be enough for them to make a move. The most important thing is supply and demand.

[rajani]

Rate cut may result as increase in price rate.

[milehighlistings]

I do not think a rate cut will do anything for home prices. We are sitting on a 11 month supply of homes. To see home values rise we will have to get through the current supply of homes.

[jamesww]

I do not think a rate cut will do anything for home prices. We are sitting on a 11 month supply of homes. To see home values rise we will have to get through the current supply of homes.

The interest rate cut will cause a decrease in real value of homes. With the current concern of inflation interest rate cuts by the fed will marginally increase interest rates for home purchases. This will decrease the number of available qualified buyers for any certain home. Less buyers mean less demand and less demand with todays current oversupply will mean lower real estate values.

[milehighlistings]

jamesww,

I am confused by your comment. How does a rate cut cause interest rates to go up and home prices to go down. By cutting rates the FED makes money cheaper to borrower therefore more people qualify for home loans. Because of the rate cuts, the spread between mortgage rates and treasury yields has come in considerably over the past couple of months due to the FED cuts, resulting in lower interest rates. Rates are actually very good right now with the 10 year yield touching 3.74 today. If we continue to see inflationary pressure yes we will have higher rates. But we should see rates trade in a rather tight range for the following months. I do agree that the credit crunch has taken people out of the market however the FHA is stepping up is lending power tremendously.

[jamesww]

jamesww,

I am confused by your comment. How does a rate cut cause interest rates to go up and home prices to go down. By cutting rates the FED makes money cheaper to borrower therefore more people qualify for home loans. Because of the rate cuts, the spread between mortgage rates and treasury yields has come in considerably over the past couple of months due to the FED cuts, resulting in lower interest rates. Rates are actually very good right now with the 10 year yield touching 3.74 today. If we continue to see inflationary pressure yes we will have higher rates. But we should see rates trade in a rather tight range for the following months. I do agree that the credit crunch has taken people out of the market however the FHA is stepping up is lending power tremendously.


Fed cuts short term interest rates these do not have a direct effect on long term interest rates. Long term interest rates are determined in the most part on two things. How much riskier the credit extension is over that of treasuries for the same maturity period. Second portion has to do with interest rate risk which is tied to inflation pressures and how likely the market feels that over the long haul interest rates will rise.

Once the fed. breaks a point with short term interest rates that has the market start to be concerned with the risk of inflation and/or the likelyhood that interest rates will climb higher at a latter date you see long term interest rates go up. This is the overall trend we have seen the last two rate cuts by the fed. So, I would say that we crossed this line in the 4th quarter of 2007 as the annualized inflation rate crossed the 4% mark.

[REGuru99]

I agree with many of your posts, just would add at a very high level that the whole point of dropping rates for the fed is to encourage spending, mainly by companies in order to drive the economy.

It will increase multifamily prices more than single family real estate, by freeing up investment capital, while not affecting interest rates that much, as stated before.