Have we hit bottom yet?

The Federal Reserve cut the “discount rate” on Friday by a half percent.  The “discount rate” is the rate the banks pay to the Federal Reserve to borrow money.   Is the the perception in the real estate world that home loan rates are tied to the “discount rate”.  This is inaccurate.  The home loan rate is more closely tied to bonds, as most home loans are “packaged” and sold to investors.  It’s actually this packaging that has fueled the sub  prime loan mess, but that’s a story for another day.  Today we speak of the housing market, which I fear has not yet hit bottom.  The first quarter of 2005 was the peak for adjustable rate loan originations.  That means that the the first quarter of 2008 is the peak for adjustments on the 3-1 ARMS.  Agora Financial’s Strategic Investment newsletter has an article with a table showing that March 2008 will be the peak month for adjustables with $110 Billion dollars in home loans scheduled to reset that month.  This does not bode well for the average homebuyer.  I predict that we will go from seeing almost anyone who could conjure up income statements getting a loan, to a massive swing with FHA being the only option for the first time homebuyer.  This is not a bad thing, but will require significant retraining for buyers.  Many first time homebuyers will need to be helped through the process of cleaning up credit and saving a 3% down payment.  This alone will further slow down the real estate market.  What does this mean for the investor- stayed tuned as we explore the world of foreclosures and REO’s.