The Fed’s main tool is control over the short-term fed funds rate, which determines what banks charge each other for overnight loans. Long-term mortgage rates are mostly tied to the 10-year Treasury yield, which is determined by bond traders worldwide.

“There is a long disconnect between the fed funds rate and fixed mortgage rates,” said Keith Gumbinger, vice president of mortgage and consumer loan information publisher HSH.com.

Inflation drives long-term fixed rates. When the Fed cuts short-term rates, the intent is to lower borrowing costs for corporations so that they’ll invest and hire. But this economic growth can lead to inflation.

That in turn leads bond traders to demand higher rates on their long-term bonds – and that drives up mortgage rates too.

“Mortgage rates are determined by how fearful the market is of inflation,” said Gumbing

And our 401K incomes way down.

See the proof:

http://biz.yahoo.com/cnnm/080318/031408_ratecut_mortgages.html

http://articles.moneycentral.msn.com/Investing/CompanyFocus/WaMuSkipCustomersSaveTheExecs.aspx

http://www.tickerforum.org/

Moe Ronn, he’s set “crashcon 1″ and “digging in” at:

http://clearcutbainbridge.blogspot.com/

Which is why this whole bubble will easily resolve itself within the next 30 years. The dying will not be replaced (as there are no children) and the immigrants will go home once they’ve made enough $$$ here. At which point, Seattle will be over taken by stray dogs and people will avoid the city for fear of rabies.

nominate for post of the week

there are more Seattle households with dogs than kids.

Which is why this whole bubble will easily resolve itself within the next 30 years. The dying will not be replaced (as there are no children) and the immigrants will go home once they’ve made enough $$$ here. At which point, Seattle will be over taken by stray dogs and people will avoid the city for fear of rabies.

Here are some choice quotes:

“To learn more about our small household size, let’s look at kinds of households, in Seattle versus suburbia. Seattle is off the chart! Here, like the U.S. as a whole, two-thirds of suburban households are families, 25 percent to 30 percent are singles, and 5 percent to 7 percent are unmarried partners or roommates. But in the city of Seattle, an astounding 44 percent of households are single persons. (Along with San Francisco, Seattle’s singles percentage is the highest in the nation for a major city.) A very high 12 percent are unmarried partners (often de-facto families), only a little behind San Francisco. Only one-third of households are traditional husband-wife families”

and

“We often hear about high levels of educational attainment in greater Seattle, but this isn’t true of Pierce, Kitsap, or Snohomish counties, where 23 percent to 27 percent of adults have a bachelor’s degree or more, close to the U.S. rate of 27 percent. But high educational levels definitely describe King County (suburban King 40 percent, Seattle an out-of-sight 53 percent). A significant share of these well-educated folks are migrants from other states and countries. A remarkably low 37 percent of Seattleites are native to Washington: 44 percent are from other states and 19 percent are from abroad (half from Asia).”

I’ve heard that Pierce Co has had the highest rates of “exotic loans” in recent years. One would imagine that foreclosures would be hitting there the hardest. Do you know of any place that has systematically examined foreclosure-related activity in non-KingCo areas?

Down the street from me in NorKirk, there’s an early 70’s split level for sale (asking 850k) that has pergo floors, black granite countertops and stainless appliances in the kitchen. It’s like putting a spoiler, performance exhaust and a Type-R sticker on an ‘87 Yugo. I think that’s pretty special.

the longer it takes could be the more likely it does not happen as bad as many predicted. We are already through several rate cuts and 7 months past the start of the “credit crisis”, if it makes it thorugh unscathed…imagine the mantra … the fact is 5-10% declines will still be a victory compared to whats happening in the rest of the country and the market will resume back to normal after the declines in 3-5 years.

PS normal is not 10% appreciation a year.

To be fair I do think these homes deserves a premium. They are limited and or unique due to the age and style and the areas do have some “special” attributes. IMO the eastside is the most extremely overvalued area. Except for the lakeside/lakeview homes there are nothing unique or special with the homes or areas. It’s the same 70s-80s-90s-2000s homes in abundant as everywhere else. Being close to a major employer counts for little. There are many major employeers in this country without this kind of premiums.

Personally I’m interested in Snohomish county, out a ways where I can have a few wooded acres, ideally with a creek or stream, and enough open space to have a garden. I like it a lot up in Skagit too, but then we’re getting quite a ways away from all our friends, so Snohomish is probably a better compromise.

I follow King County so closely because I know that it will be the last to fall, so to speak.

Of course, the same can be said of the suburbs. They too will see even more dramatic price declines when the Dow hits 10,000.

If not King Co., where’s your ideal area?

at some point, this premium will become unsustainable and seattle prices will also start to fall. this is what happened everywhere else so far.

the end game depends quite a bit on macro impacts, though. what will interest rates be? will houses continue to be seen as high-performing investments? how will lending standards change?

the biggest factors i see regarding the seattle premium will be attitudes towards old houses (is fixing them a fun hobby or an expensive pain?), gas prices, community-type preferences. i use my car about once a week because i choose to walk most places, so i am willing to pay a pretty decent premium to live in the city.

so, yes, outlying areas will fall first, but seattle proper will catch up at some point.

Since the spring selling season is coming, I expect to see a small bounce for a couple of months in KC: slight YOY price increases and improved sales rates. Then back down. Of course, I could be completely wrong :).

I do love watching those inventory numbers continue to climb!

February Case Shiller should be interesting.