Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

September 20, 2007

Will Rate Cut Revive RE Market?

by @ 9:36 am. Filed under Real Estate

Since the Federal Reserve cut its “federal funds rate” by half a point on Wednesday, I’ve engaged is several vigorous discussions regarding the impact of this rate cut on the local housing market. The optimists believe this will rekindle the refinancing boom and, with money available so cheaply, buyers will get more aggressive in closing deals. I disagree. I believe housing prices are still higher than they should be and that the average buyer senses that. Regardless of how low an interest rate is available, few people will lock themselves into a purchase price in what they believe is a declining market. You risk losing the equity you invest in the new home or, if you’ve financed the bulk of the purchase price, you risk owing more than the property is worth. My position was supported by a column in yesterday’s New York Times. From 1960 to 2000, the ratio of the value of the average home to the average household income stayed at about 3 to 1 (for example, a house that cost $120,000 was typically occupied by folks with a household income of $40,000). Since 2000, however, that ratio has gone up so that it is now 4.5 to 1. And that’s the national average; in California, Florida and the Northeast, it’s even higher than that. According to this article, until the price of houses slips back to the 3 to 1 ratio, houses should be considered to be overpriced.

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