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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (241716)	3/22/2010 12:00:48 PM
From: neolib	Respond to of 306849

But without riduculous low rates a lot of the fuel would have been off the fire. The only problem with that theory is the FED setting low rates does not set low rates for 15 & 30 year FIXED mortgages. You have to understand the difference. 15 & 30 year fixed rates are set by the fabled market. Its also the market from lenders to home buyers who decide that Option ARMS are viable. You can certainly argue that Option ARM rates ARE impacted by FED rates, but the risk of entering such a contract is still both the lenders & buyers responsibility, and that is market based, not current FED rates because there is just a tiny little timeline difference between the two. There are certainly some buyers (I was one in 2005, and an employee of mine was another) who do fit more your view. I bought a rental house, financed by the owner for 3 years. My employee bought a house with a bank loan financed for 2 years. Those time periods are short enough that low FED rates do add fuel to the fire so to speak. Still, both loans were fixed rate even with the short time period, but the price of short term loans in general was lowered by FED actions. Certainly the flipper category with Option ARM was predicated on this. But even there, the risk of loan resets vs home price appreciation is the buyers (and lenders) responsibility to figure out. Its still their behavior. Nobody put a gun to their head and made either side do the deal. And as proof, the deals are not being made now with even lower FED rates. QED.