Housing market spurs fear of lending, which central bank can’t control

The Federal Reserve's bold three-quarter point cut in interest rates was designed to stem the slide in the stock market and ease widening fears that the U.S. economy is sliding into recession. While the move helped slow a global slide in stock prices Tuesday, the long-term economic impact of cutting interest rates may be limited.

Why? To paraphrase an old campaign slogan, it’s the housing market, stupid.

Though mortgage rates have been low for months, the housing market is still stuck in its worst recession in decades. Even as housing starts continue to fall, the inventory of unsold houses has risen. With prices falling in many parts of the country, buyers are waiting for a turnaround before they start house hunting again. As foreclosure rates have risen, so has the pace of unsold houses being dumped on the market.

At some point, the housing market will hit bottom. But the timing of that turnaround remains extremely murky — in large part because it’s unclear how many more homeowners will lose their homes to foreclosure this year and next.

Over the next several years more than $1 trillion in adjustable mortgages, written during the height of the easy-money lending boom, is scheduled to reset to higher rates. Unlike conventional ARMs that move lower as market rates fall, many of these mortgages are set to ratchet up to monthly payments that many homeowners won’t be able to afford.

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In case you didn't catch that... $1 TRILLION in adjustables.

There won't be any "rebound" anytime soon.

That sucks. I want to buy after my one year lease is up here. Prices sound like they're going to continue going downwards at that time, so maybe it is better to wait longer before buying.

We'll see what happens in a year.

Prices are expected to have downward pressure for at least a year (optimistic) or the next 3-4 (realistic).

Rates will go up eventually, however the tax benefit of a higher rate is helpful to some.