patrick.net

austrian_man says

I thought we went through this already. Central banks have a strong influence on Treasury notes and mortgage rates track the Treasury rate of interest.

We have been through this--that's why I'm surprised you are still staying that Central Banks set mortgage rates. At best, they can influence them buying buying treasury notes. They are not always successful.

You didn't answer why you think interest rates aren't at their true market level though? How did you come to that conclusion?

Mortage rates have little to do with the interes trates set by central banks. They are set by the prices of mortage backed securities.

http://www.minneapolis-st-paul-purchase-and-rehab-loan-guide.com/top-five-market-factors-that-influence-mortgage-rates/

Yea this is ridiculous tat, you're being obtuse at the very best or facetious. Mortgage rates are heavily influenced by the prime rate which is set by the central banks. You take the prime rate and a few percent or so for the banks to profit and there is your mortgage rate.

So if the prime rate goes up to 6% mortgage rates will be well above that and sure as hell not even or below that.

Right now the prime rate is being kept artificially low. On top of this the GSE's have become the buyer of last resort for the housing market and so they take nearly everything and make up nearly all the business, over 90% IIRC.

This is as clear cut case of a artificial market as you can get.

That sales are still in the gutter and prices are still inching down, 2 years after the recession supposedly ended and multiple mortgage moratoriums and a huge tax credit, suggests that the market "wants" to find a much much lower price for homes in general.

Considering wages, debt levels, cost of living, foreclosure numbers, high inventory, and high unemployemnt this should be a no brainer to everyone.

Without the government's support rates would probably be much higher but housing prices would also probably be massively lower. A high rate on cheap house is far far better than a low rate on an expensive house both for the borrower* and the economy in general since in the end much less income is spent on debt, which means more to spend on goods in services in the long run.

*Easier to come up with the 20% or more downpayment on a cheap (price of ~2x yearly income or less) home than an expensive (price of 3-4x or more yearly income) home.

tts says

Yea this is ridiculous tat, you're being obtuse at the very best or facetious. Mortgage rates are heavily influenced by the prime rate which is set by the central banks. You take the prime rate and a few percent or so for the banks to profit and there is your mortgage rate.

lol. Don't think so. Roberto is correct that mortgage rates do correlate best with 10 yr. treasuries. I think that you'd find MUCH less correlation with the prime rate.

tts says

Right now the prime rate is being kept artificially low

OK. I'm not saying you are necessarily wrong. But, please show me some data that tells you that. What should they be minus any government meddling?

tatupu70 says

lol. Don't think so. Roberto is correct that mortgage rates do correlate best with 10 yr. treasuries. I think that you'd find MUCH less correlation with the prime rate.

Maybe maybe not, the difference is likely to be small enough to make your point pedantic assuming you aren't just trolling.

Prime rate goes up mortage rates are gonna follow it up. If it flucuates over a short period of time you're going to see discrepancies but there no getting around the prime rate in the end, EVERYTHING is effected by it in the end.

tatupu70 says
OK. I'm not saying you are necessarily wrong. But, please show me some data that tells you that. What should they be minus any government meddling?

No one knows since the gov. has such a huge chunk of the market, nearly all of it in fact. The only thing you can say for certain is that it'd likely be much much higher.

tts says

Maybe maybe not, the difference is likely to be small enough to make your point pedantic assuming you aren't just trolling.

I'll try to find it. I obviously disagree.

tts says

Prime rate goes up mortage rates are gonna follow it up. If it flucuates over a short period of time you're going to see discrepancies but there no getting around the prime rate in the end, EVERYTHING is effected by it in the end.

Yes, but you have to be careful between causation and correlation. The prime rate, 10 year treasuries and prevailing 30 yr. mortgages are all affected by the same forces so they will generally move together. Doesn't mean that the prime rate is causing the mortgage rate to change.

tts says

The only thing you can say for certain is that it'd likely be much much higher.

No offense, but you can't say that for sure. It's your opinion, but you've provided zero evidence to back it up.

Here you go. Fed Funds rate vs. 30 yr. mortgages.

http://www.azmortgageguru.com/mortgage-rates-not-related-to-the-federal-funds-rate/

As you can see, there is no direct relationship. Generally they move together because they are affected by the same forces.

tatupu70 says

tts says

No offense, but you can't say that for sure. It's your opinion, but you've provided zero evidence to back it up.

No one can predict the future but its easy to find a trend.

The fact is the economy is the gutter.
The fact is there is a huge amount of inventory.
The fact is house sales are very low.
The fact is foreclosures are still high.
The fact is despite large tax credits, mortgage moratoriums, and other shenanigans prices are still trending down.
The fact is unemployment is very high and underemployment is still at Great Depression-esque levels.
The fact is wages are stagnant or declining.
The fact is the cost of living is rising (ie. healthcare, gas, food).
The fact is we got a government that is implementing austerity measures while all of this is going on.

This is the sort of economic environment that suggests a nasty recession already in effect or coming soon, and housing prices don't go up or plateau under those conditions. They go down, and foreclosures go up. All of which would force banks to raise borrowing costs to protect themselves. You can't pin point a rate with this information but the trend is a snap to call.

tatupu70 says

Here you go. Fed Funds rate vs. 30 yr. mortgages.

http://www.azmortgageguru.com/mortgage-rates-not-related-to-the-federal-funds-rate/

As you can see, there is no direct relationship. Generally they move together because they are affected by the same forces.

That doesn't disprove anything I'm saying and if anything backs it up. Remember I said "heavily influenced by the prime rate" and not "looool follows it exactly day by day". Litterally everything is determined by the prime rate that a central bank sets, there is no getting around this.

tts says

All of which would force banks to raise borrowing costs to protect themselves

Huh? I'm not sure I follow that logic. They might tighten lending standards and increase the spread for non-prime borrowers, but the factors that you list usually cause low rates, not high ones.

tts says

That doesn't disprove anything I'm saying and if anything backs it up. Remember I said "heavily influenced by the prime rate" and not "looool follows it exactly day by day". Litterally everything is determined by the prime rate that a central bank sets, there is no getting around this.

No--you've really got it wrong. You're asserting causation. The prime rate most definitely does not cause mortgage rates to rise. The same forces often cause both to rise or fall in tandem, but the prime rate does not directly affect 30 yr. fixed mortgages. (I should have been specific that the prime rate does directly affect ARMs.)

tatupu70 says

Huh? I'm not sure I follow that logic. They might tighten lending standards and increase the spread for non-prime borrowers, but the factors that you list usually cause low rates, not high ones.

Foreclosures + recessionary economic environment = losses + increased risk for banks. They'll tighten lending standards and raise rates to make the difference. They always have and always will.

tatupu70 says

No--you've really got it wrong. You're asserting causation. The prime rate most definitely does not cause mortgage rates to rise. The same forces often cause both to rise or fall in tandem, but the prime rate does not directly affect 30 yr. fixed mortgages. (I should have been specific that the prime rate does directly affect ARMs.)

The Fed funds rate effects the bond prices* as well as MBS and 30 yr mortgage rates and LIBOR too while you're at it. I'm not kidding when I say it effects everything. It is litterally the "price" banks pay to lend back and forth to eachother, and you think it won't cause mortgage rates to rise?! This is basic banking structure 101 stuff so I don't even know why you're arguing against this.

*

Bond Rates

Bonds are fixed-term debt obligations issued by businesses, governments and governmental organizations. Bonds compensate the holder by providing an interest yield, which is a combination of the stated interest payments, or coupons, and the discount or premium on the face value of the bond. When the Federal Reserve reduces the target federal funds rate through open market operations, the yield on bonds in the economy is typically reduced as well. When the Federal Reserve increases the target federal funds rate, the yield on bonds in the economy typically increases.

tts says

They'll tighten lending standards and raise rates to make the difference. They always have and always will.

When have they done that? I disagree that banks would raise mortgage rates during poor economic times. I don't remember that ever happening.

tts says

I'm not kidding when I say it effects everything. It is litterally the "price" banks pay to lend back and forth to eachother, and you think it won't cause mortgage rates to rise?! This is basic banking structure 101 stuff so I don't even know why you're arguing against this.

Yes, I know what the Fed Funds rate is. What you've got to remember is that Fed funds is short term whereas mortgage rates are 30 years. There is a huge difference there. Just because I can get money at 1% today doesn't mean I want to lend it out to someone for 30 years at 1%.

There are times when mortgage rates rise when the Fed lowers the Fed Funds rate. Investors might believe that the economy is on the verge of heating up so that the Fed Funds rate drop will actually cause long term rates to go up. You just have to remember the difference between short term and long term.

tts says

losses + increased risk for banks

With taxpayers on the hook they don't have any risk. Their wallet is padded with cash. Now they are playing game by holding the inventory. We need a change in Washington to fix this - I am not seeing that happening in our lifetime.

tatupu70 says

When have they done that? I disagree that banks would raise mortgage rates during poor economic times. I don't remember that ever happening.

Uh it happened during this bust right up until the government stepped in. During previous recessions the gov. was cutting rates, often pretty heavily so this masked the effects to the end borrower. In effect rates would end up lowered but not as low as they should've been in a less risky/lossy economic environment. If you go back to pre Great Depression recessions it was more obvious.

tatupu70 says

What you've got to remember is that Fed funds is short term whereas mortgage rates are 30 years.

Yes its overnight only usually...but it also effects the bond prices as well. Bonds can be up to 30 years or less so the 10 yr bond you're looking at will get effected too. If you know this too then you also know there is no getting around effect of the Federal Fund rate, so unless you're willing to shift some goal posts around or have some other fundamental misunderstanding this discussion is over.

tatupu70 says

There are times when mortgage rates rise when the Fed lowers the Fed Funds rate. Investors might believe that the economy is on the verge of heating up so that the Fed Funds rate drop will actually cause long term rates to go up. You just have to remember the difference between short term and long term.

Remember when I said this just a few posts up the page?

If it flucuates over a short period of time you're going to see discrepancies but there no getting around the prime rate in the end, EVERYTHING is effected by it in the end.

So thanks for agreeing with me.

tts says

If you know this too then you also know there is no getting around effect of the Federal Fund rate, so unless you're willing to shift some goal posts around or have some other fundamental misunderstanding this discussion is over.

I agree the discussion is over. You admit that the mortgage rates sometimes move opposite of the Fed Funds rate but yet insist that the funds rate directly affects mortgage rates. I'm not sure how that computes in your mind, but clearly we're not getting anywhere in our discussions.

I still haven't seen anyone post what interest rates "should" be without government interference. Or how they came to that conclusion.

tatupu70 says

I agree the discussion is over. You admit that the mortgage rates sometimes move opposite of the Fed Funds rate but yet insist that the funds rate directly affects mortgage rates. I'm not sure how that computes in your mind, but clearly we're not getting anywhere in our discussions.

Posting this again since you missed it somehow 2 times now or something:

If it flucuates over a short period of time you're going to see discrepancies but there no getting around the prime rate in the end, EVERYTHING is effected by it in the end.

Might have to keep posting this until it sinks in or something I guess.

tatupu70 says

I still haven't seen anyone post what interest rates "should" be without government interference. Or how they came to that conclusion.

You also haven't shown why that matters nor why my comments on the trend don't matter either. Beat that strawman some more I guess.

bubblesitter says

With taxpayers on the hook they don't have any risk. Their wallet is padded with cash. Now they are playing game by holding the inventory. We need a change in Washington to fix this - I am not seeing that happening in our lifetime.

This is true for the TBTF banks. Smaller ones can indeed be screwed by their own bad decisions. Also if eventually nearly no one can buy a home because the prices are kept permanently high the politicians will be beaten to death in the street at some point in the likely distant future. This is part of the reason why they keep trying to prop up home prices...and yet let them fall for a while before trying again. They're trying to drag things out as long as humanly possible without pissing off too many of the wage slaves while also propping up the banks by way of high home prices + other shenanigans like you mentioned. Eventually we'll get to that bottom anyways but it'll take a few more years at a minimum.

If we get a double dip (pretty much assured at this point IMO) and home prices really start to tank big time again they'll pull out all the stops again and maybe push off the bottom until the end of the decade but it'll still happen.

tts says

If we get a double dip

All indications are pointing that way. With a need to erase the massive deficit into the next decade,even if economy starts recovering it will take a decade to break even. Home prices have 10 more years to go down if it is to go at a current pace.

robertoaribas says

Nevertheless, the Pearson product moment correlation between the 10 year treasury and mortgage rates came up with an R value of about 0.75 last time I calculated it... Very strong correlation of a linear fit.

Agree, the 30-year fixed rate is usually the 10-year Treasury rate + a spread. The spread has changed over the years because perceived risk has changed. During the housing boom years, the spread was probably lower than it should have been, and currently due to government intervention, the spread is probably lower than it should be.

tts says

Posting this again since you missed it somehow 2 times now or something:
If it flucuates over a short period of time you're going to see discrepancies but there no getting around the prime rate in the end, EVERYTHING is effected by it in the end.
Might have to keep posting this until it sinks in or something I guess.

And I'll post this again. There is a difference between causation and correlation.

tts says

I still haven't seen anyone post what interest rates "should" be without government interference. Or how they came to that conclusion.
You also haven't shown why that matters nor why my comments on the trend don't matter either. Beat that strawman some more I guess.

It matters because you and others keep saying interest rates are too low--that they "should" be much higher. I'm asking why you came to that conclusion. Presumably there is some data that led you to write that. Should they be 1% higher? 2% higher? 4% higher? Further, mortgage rates have been falling recently--how do you explain that? If they were truly "too low" because of government intervention, does that mean the FED is buying up treasuries now? Otherwise why would they be dropping? The free market wants them to go up, right?

tatupu70 says

It matters because you and others keep saying interest rates are too low--that they "should" be much higher. I'm asking why you came to that conclusion.

OK we have some agreement that Mortgage rates track Treasury rates with some spread. Causation or correlation is just a pedantic detail. I come to the conclusion that the mortgage rates should be higher because buying a home in the current market is risky. If I'm a buyer and my loan is sliced as securities and sold on the market -- if home buying is risky, then naturally the investor who buys my securities should get a higher rate of interest, correct?

This is what would have happened if the Fed did not intervene and add MBS to their portfolio.

tatupu70 says

Should they be 1% higher? 2% higher? 4% higher

They should be high enough to indicate that there is no artificial market intervention, thereby truly indicating the risk in buying a house. Obviously banks hold housing loans on their portfolio and this would lead to a bloodbath on their balance sheets. This would also bring down the house prices lower because most people cannot borrow at the higher rate of interest. You see where I'm going?

it is the price discovery mechanism that has been corrupted by artificial intervention . Great for people already neck deep in debt because it is ensuring their values don't decline, but not good for the marginal buyer who saved cash and waiting to buy a house.

austrian_man says

if home buying is risky, then naturally the investor who buys my securities should get a higher rate of interest, correct?

Yes and no. Interest rates are only one way to offset the risk. It depends on what the risk is--requiring larger downpayments, tighter underwriting standards could also offset the risk. I could see if the spread increased between prime borrowers and subprime.

austrian_man says

it is the price discovery mechanism that has been corrupted by artificial intervention

I see what you're saying, but I don't agree. Ideally the banks with all the crap loans on their portfolio should have gone away. Presumably new banks would emerge without clean balance sheets and these banks would have loaned out their money at the "free" market rates. Because the bad banks didn't go bankrupt, the FED has injected liquidity to allow the market to find the market rate. It wasn't the FED that pushed the yield on the 2yr treasuries to record lows, or the 10 year to very low rates.

tatupu70 says

Ideally the banks with all the crap loans on their portfolio should have gone away.

Agree here.

tatupu70 says

Presumably new banks would emerge without clean balance sheets and these banks would have loaned out their money at the "free" market rates.

Hold on here...why would new banks emerge that don't have clean balance sheets? to me, that's like saying I am starting a new enterprise and I am already at a loss. how could that be? you lost me there itself. I think you're wrong here.

tatupu70 says

Because the bad banks didn't go bankrupt, the FED has injected liquidity to allow the market to find the market rate.

That is a super-lunatic statement. Read it again yourself and see if what you said makes sense. "market find the market rate"? Seriously?
If the fed did not intervene, bad banks would have failed. new banks will emerge and they will set the rate. This would obviously be much higher than the present rates.

tatupu70 says

It wasn't the FED that pushed the yield on the 2yr treasuries to record lows, or the 10 year to very low rates.

That is exactly what the FED did with QE1 and QE2. THEY BOUGHT US TREASURIES. That to me is directly pushing the yields lower because the Fed is a buyer with an infinite bank balance - they create money out of thin air when they buy treasuries.

austrian_man says

Hold on here...why would new banks emerge that don't have clean balance sheets? to me, that's like saying I am starting a new enterprise and I am already at a loss. how could that be? you lost me there itself. I think you're wrong here.

Sorry--I meant to say new banks with clean balance sheets.

austrian_man says

If the fed did not intervene, bad banks would have failed. new banks will emerge and they will set the rate. This would obviously be much higher than the present rates.

Why would the rates obviously be much higher?

austrian_man says

That is exactly what the FED did with QE1 and QE2. THEY BOUGHT US TREASURIES.

Yep, and the key word in that sentence is "did". I agree there was a point in time where the FED intervened to lower mortgage rates. But that time has passed, hasn't it? And if rates fall after the FED intervention, then that shows the market is setting the rate.

tatupu70 says

Why would the rates obviously be much higher?

Because lending now is much more riskier from the bank's perspective since there is so much inventory overhang (foreclosure moratoriums) and it does not know for sure if the borrowed amount is a fair price. The only way the bank can be assured of the return is if the borrower is credit-worthy for the charged higher rate of interest. It is exactly TIGHTENING LENDING STANDARDS.

tatupu70 says

But that time has passed, hasn't it? And if rates fall after the FED intervention, then that shows the market is setting the rate.

Well the FED is still continuing to re-invest its maturing securities into new securities, so in some sense -- this intervention is still going on. Right now, fear has gripped the market and so there is a flight to the Treasuries, but it won't be long before the people realize that the Emperor is naked.

austrian_man says

Right now, fear has gripped the market and so there is a flight to the Treasuries, but it won't be long before the people realize that the Emperor is naked.

Agreed. That's my point. The market is setting the rate, not the FED.

austrian_man says

Because lending now is much more riskier from the bank's perspective since there is so much inventory overhang (foreclosure moratoriums) and it does not know for sure if the borrowed amount is a fair price. The only way the bank can be assured of the return is if the borrower is credit-worthy for the charged higher rate of interest. It is exactly TIGHTENING LENDING STANDARDS.

I'm not sure I agree with that. I'd say it was much riskier in 2006 than it is now. But there is definitely some risk of prices going lower, no doubt. I think it makes more sense to require larger down payments..

Why do people on the internets capitalize "FED"?

tatupu70 says

And I'll post this again. There is a difference between causation and correlation.

Which hasn't been disagreed with. Beat some more strawmen into the ground I guess.

tatupu70 says

It matters because you and others keep saying interest rates are too low--that they "should" be much higher. I'm asking why you came to that conclusion. Presumably there is some data that led you to write that. Should they be 1% higher? 2% higher? 4% higher? Further, mortgage rates have been falling recently--how do you explain that? If they were truly "too low" because of government intervention, does that mean the FED is buying up treasuries now? Otherwise why would they be dropping? The free market wants them to go up, right?

I already told you how I came to that conclusion (trends) which you have not tried to address in any way shape or form. You just keep saying, "Oh you don't know what the rate will be? LOOOOL That is just your opinion." The best anyone anywhere could give you, even the Fed itself, is a WAG of where rates will be exactly in the future. I would point out that historically Fed Fund rates tend to be around 4-5% "normally" but have reached much much higher levels in the past when the government has had to stymie inflation (the 80's of course) which also pushed the mortgage rates up to insane levels (ie. 18% or even more). The Fed and government's actions have baked high inflation into the cake. There is no getting around this, the only question is how high the inflation levels will be and for how long, my guess is pretty damn bad since this is much much worse than the 70's. Falling rates? Already addressed too (gov. intervention). Also the "free market" comment is just precious. We don't have a free market and there probably isn't one that has existed anywhere ever.

tts says

Which hasn't been disagreed with. Beat some more strawmen into the ground I guess

I don't think you know what a strawman is. You are stating the Fed Funds rate directly determines mortgage rates. That is causation. I'm saying that outside factors affect both mortgage rates and Fed funds rate so they generally move together. That is much different than if the Fed Funds rate causes mortgage rates to change.

At least I think that's what you are saying. Please correct me if not.tts says

You just keep saying, "Oh you don't know what the rate will be? LOOOOL That is just your opinion."

See now you are getting ridiculous. I would never use 4 O's

tts says

The Fed and government's actions have baked high inflation into the cake. There is no getting around this, the only question is how high the inflation levels will be and for how long, my guess is pretty damn bad since this is much much worse than the 70's.

There are lots of people who would disagree with you. As evidenced by investors pushing bond yields down to almost record lows today. I think people are more worried about another depression then they are about inflation.

tts says

We don't have a free market and there probably isn't one that has existed anywhere ever

Now that's precious. Splitting hairs much?

tatupu70 says

That is much different than if the Fed Funds rate causes mortgage rates to change.

No, I've already quoted myself once since you forgot previously to or something:

Remember I said "heavily influenced by the prime rate" and not "looool follows it exactly day by day".

and here is the original:

Mortgage rates are heavily influenced by the prime rate which is set by the central banks. You take the prime rate and a few percent or so for the banks to profit and there is your mortgage rate.

The other factors are relatively minor in comparison.

tatupu70 says

There are lots of people who would disagree with you. As evidenced by investors pushing bond yields down to almost record lows today. I think people are more worried about another depression then they are about inflation.

Lots of people disagreeing with me means nothing at all. People disagreed with me about housing prices too back in 05/6 and again in 2009. Also current bond rates aren't necessarily a good barometer of future bond rates. Lots of other countries have similar issues with their economies as we do but are in even worse shape so we look better in comparison but aren't necessarily seen as in good shape in the short term or long term.

tatupu70 says

Now that's precious. Splitting hairs much?

Nope. You didn't elaborate on that whole "free market" thing at all so if there was some sort of exception or gotcha you have to say (and you still haven't) it otherwise people will read it and take it litterally. Free markets don't have regulations or governments stepping in and saying short selling is OK one week and not the next, or doing QE, or buying up bad assets at 100 cents on the dollar that no one else will touch for 5-20 cents on the dollar at the most, or doing mortgage moratoriums, or letting the banks keep inventory off the books, or giving out home loans when no else will with low rates, etc.

We have never had anything at all like a free market but the last few years have been particularly subject to government intervention in almost every way shape and form. So are we to interpret your "free market" comment as hydrochloric sarcasm or what?

tts says

Mortgage rates are heavily influenced by the prime rate which is set by the central banks. You take the prime rate and a few percent or so for the banks to profit and there is your mortgage rate.

Yes, and this is flat out wrong. As Roberto told you earlier--your statement should have been--take the 10 yr treasury rate and add the risk premium and there is your mortgage rate. Fed Funds and prime rate are short term. Mortgages are long term.

tatupu70 says

Yes, and this is flat out wrong. As Roberto told you earlier--your statement should have been--take the 10 yr treasury rate and add the risk premium and there is your mortgage rate. Fed Funds and prime rate are short term. Mortgages are long term.

Nope its dead on, go google any chart if don't like mine. The Fed Fund rate is the tide that raises all boats, the 10 yr is like the individual waves on that ocean. Its sheer pedantry to focus on those and then to ignore the Fed Fund rate.

Um....

I'm taking tts's side here.

Fed Funds rate is the rate that most banks borrow from. Granted now it is quite low if you brought things back to the late 70's early 80's it dictated what would be the lowest rate across the board. Of course a bank needs to make money so no one will pay Fed Fund rate..the open market window is open to all but I don't think any individuals actually received direct funds
http://en.wikipedia.org/wiki/Federal_funds_rate

Now if you mean banks lending to each other then that invokes Libor but that's not what is being argued.

The Fed Funds rate is what everyone watches when the Fed has a meeting. It goes up, down or stays the same. If it isn't that then it's the Beige Book.
http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
I still can't believe the rates are as low as what they are.

One might try to say that the 30 year t bill is what mortgages are based on...but the 30 year so called long bond was actually discontinued for awhile. Treasury secretary o'neil was pretty pissed off when it was leaked out accidentally. Even when the long bond was gone people still went out and got mortgages.

tts says

Nope its dead on, go google any chart if don't like mine. The Fed Fund rate is the tide that raises all boats, the 10 yr is like the individual waves on that ocean. Its sheer pedantry to focus on those and then to ignore the Fed Fund rate.

tatupu70 says

Here you go. Fed Funds rate vs. 30 yr. mortgages.

http://www.azmortgageguru.com/mortgage-rates-not-related-to-the-federal-funds-rate/

As you can see, there is no direct relationship. Generally they move together because they are affected by the same forces.

Here are a few more links for you:

http://library.hsh.com/articles/more-tools-resources-and-info/mortgage-basics/does-the-federal-funds-rate-affect-mortgage-rates

http://www.behindthemortgage.com/2008/10/fed-funds-vs-mortgage-rates.html

http://www.behindthemortgage.com/2008/03/fed-cuts-rates-will-mortgage-rates-rise-as-a-result.html

http://www.getrichslowly.org/blog/2008/01/31/are-mortgage-rates-tied-to-the-federal-funds-rate/

On that last link, the 2nd graph is most interesting. It looks like the mortgage rate affects the Fed Funds--not the opposite. Mortgage rates drop first, then the Fed drops the Fed Funds rate--implying that the market sees the slowdown before the Fed acts.

I don't think that the banks are intentionally holding houses off of the market to put a crimp on supply. If they are, they are fools since properties rapidly degrade without constant maintenance,

wbblair3 says

f they are, they are fools since properties rapidly degrade without constant maintenance,

you've obviously not read the news link below:

http://www.csmonitor.com/Business/Mises-Economics-Blog/2011/0729/Banks-bulldoze-houses-despite-millions-being-homeless

Banks are destroying houses instead of actually letting the market discover the price.

wbblair3 says

I don't think that the banks are intentionally holding houses off of the market to put a crimp on supply. If they are, they are fools since properties rapidly degrade without constant maintenance,

austrian_man says

you've obviously not read the news link below:
http://www.csmonitor.com/Business/Mises-Economics-Blog/2011/0729/Banks-bulldoze-houses-despite-millions-being-homeless
Banks are destroying houses instead of actually letting the market discover the price.

Not sure that article disputes blair's point. These are homes that pretty much won't sell for any price.

All of that only to realize Interest rates are influenced by DEMAND. NO BUYERS-NO INTEREST.

HOW can we force the banks to kick down ? WE (taxpayers) own that shadow inventory. It's MY inventory and I want it NOW !