Industry News

Recession, foreign debt seen as wild cards for ’07 recovery

Mortgage rates could go up even if Fed slashes short-term rates

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Housing and finance experts say lower interest rates and a healthy economy could help housing markets rebound in 2007. But there's no guarantee that a surge in oil prices or another unexpected jolt to the economy won't send the country into a recession, with long-term interest rates soaring even as the Federal Reserve cuts short-term rates to encourage borrowing. The slowdown in housing helped keep inflation in check in 2006, allowing the Fed to take a break from a string of 17 straight increases in the short-term federal funds interest rate since 2004. Many analysts now expect the Fed to cut the benchmark short-term interest rate in 2007 to avoid curtailing economic growth. Financial analysts at UBS and Oxford Analytica are forecasting a 125-basis-point reduction in the federal funds rate by the end of 2007, to 4 percent. Although lower interest rates could serve as an incentive to potential home buyers, long-term rates don't always follow the Fed's lead. Mortgage rates are tied to ...