If you missed the lowest mortgage interest rates, you may be wondering what's happening. Why are they going up when the Fed is expected to cut federal funds rate by as much as three-quarters of a point?

The bubble has floated from housing to stocks and burst in both investing arenas. Now there's a bubble in commodities. According to Realty Times mortgage expert David Reed, as long as commodity prices keep going up, mortgage rates won't come down again any time soon.

Economic indicators don't move up or down in a vacuum. And right now commodity prices are rising on the weaker dollar and world demand for corn and other grains to produce ethanol and food. Gold is near $1,000 an ounce hedging against a weaker dollar. Oil is setting new records almost daily, the latest at $106 a barrel.

That's keeping inflation higher than the two percent rate the Federal Reserve is comfortable with.

Reed points out that if inflation were in check, we could have seen mortgage interest rates as low as 5.00 percent, but that train has left the station. Instead mortgage rates are closer to 6.25 percent today.

"Today's Unemployment Report showed that we actually lost 63,000 jobs last month," says Reed, "but instead of mortgage rates falling on the news, the street rate has barely nudged since yesterday."

That's a bad sign that inflation is really taking off.

So here's what's likely to happen. Buyers will be more hesitant about buying homes. Since mortgage interest rates aren't as accommodating, home prices will have to drop further, and in the meanwhile, housing inventory will stack up higher than the 10 months on hand we already have.

There's pent up demand from buyers, but as long as they're on the sidelines, there will also be pent-up demand to sell from sellers, those with homes on the market and those who have been waiting to put their homes on the market.

The Federal government will have to step in to avoid a depression, and the only thing they can do now is sweeten homebuying incentives, like they did in 1987 and 1997. Why will this be necessary?

Today's homebuyer thinks a home is only an investment. The NASDAQ has never recovered to its 2000 highs because people want the big return on their investment. They could likely look at housing the same way - not interested if it only returns two percent a year. Never mind that two percent a year is the historical norm. They want more.

It will take a while, but people will start buying homes again, but only with incentives. And the whole housing crisis will be over because once those incentives are given, they're mighty hard to take away.

Published: March 10, 2008

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.