If homebuyers are hoping for another interest rate windfall before they step in to relieve swollen inventories of new and existing homes, they may be waiting too long.

The Federal Reserve held short-term interest rates for federal funds at 5.25 percent, based on a wide range of data that indicate that inflation is being held in check and the economy is on a moderate growth path despite the slowing caused by the softening housing market. However, a slowing economy doesn't necessarily result in lower mortgage interest rates, although it will probably result in rising housing inventories down the road.

Some buyers may decide it's better to wait, but if they want to take advantage of builder incentives and sellers who are desperate because of the 2006 slowdown, buyers should act now. Why? They'll be able to add low interest rates to their good deals in housing.

Before things change, that is.

According to one of my favorite economists, Mark Dotzour, chief economist with the Texas A & M Real Estate Center, the Center "has been advising real estate decision makers to be aware that an inverted yield curve almost always leads to recession. Clearly, the 5.25 percent rate is leading us in that direction. Despite the obvious weakness in autos and housing, wages, rates, and core inflation are still above the Feds 'comfort zone' of 1.5 to 2 percent.

"With unemployment levels below 5 percent nationally, the labor market is tight. This is putting upward pressure on wages. No one wants to see a return to the 1970’s version of the 'wage-price spiral.' Many who had to pay 16 percent for a mortgage loan in the 1980s will concur. The price we pay as a nation for stable prices is a periodic slowdown in the economy. The recent decline in the value of the U.S. dollar has inflation implications as well. When the value of the dollar declines, inflation in the United States usually increases. Hence, the tight labor market and the falling dollar make it hard for the Feds to lower rates anytime soon."

Core inflation is still above the FED's "comfort zone of 1.5 to 2 percent, and further tightening by the FED could happen".

While consumer prices were flat in November, that rate excludes the items we're all most nervous about -- energy and food prices. If gas prices shoot up again, like they did this summer when gas prices rose 50 percent, mortgage interest rates also soared simultaneously, grinding the housing market to a halt during its biggest selling months.

Since then, prices have eased and so have mortgage interest rates, resulting in more applications for home loans. Translation? Buyers are getting loans, which means they're buying something.

"Mixed economic reports have kept mortgage rates from making any drastic changes this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "On the upside, there was stronger job growth and greater than expected retail sales in November. Offsetting that news was weaker wage growth in that same time frame and lower indications of consumer sentiment in December.

"Long-term mortgage rates, while expected to rise over the new year, will very likely not get up to even 7 percent, which will help to moderate the current weakness in the housing market."

But mortgage rates didn't reach 7 percent in the summer months either, and look what a rise in gas prices did to consumers. While it's impossible to quantify the effects of a single consumer good or service on the sentiment of consumers, it's clear that when gas prices rise, consumers don't feel like buying homes.

Gas prices are most likely to rise during the summer months. Realty Times predicts a hot spring for housing, with a significant cooldown in the summer, and it won't be from air-conditioning.