According to the Mortgage Bankers Association, applications for residential mortgages were up last week as falling interest rates hit a two month low. The average 30 year fixed mortgage rate now sits at 5.64 percent. This is even lower than the same time last year.

What happened to rising rates?

While interest rates have been showing some signs that they were going to go up, they have not gone up nearly as much, nor as quick as expected. In the wake of Katrina, many expect rates to either hold, or even go down.

So will low rates keep filling the real estate bubble?

One could speculate that they will. Nationally, the U.S. just lost massive housing to Katrina and the supply and demand of homes will be affected. While most of the demand will probably be centered around the Southeast, other states are sure to be affected.

In Los Angeles and the hot Southern California real estate market, dropping interest rates might push a number of home buyers off the fence, as this might be seen as a last opportunity for the lowest interest rates in a lifetime. Of course, with Southern California home buyers extended further and further, how many more home buyers can there be that can afford California real estate?

According to an article in the LA Times, Mortgages take a bigger bite, many borrowers are now using as much as half their monthly incomes to pay their mortgages. At some point, conventional wisdom would argue, there will be repercussions to this stretched financing.

Sure, there could be some unforeseen economic boom just around the corner bringing new jobs and higher paying jobs; however, if job losses start increasing, many recent homebuyers could find themselves in a very sour financial predicament.

Need a Los Angeles Area Mortgage Broker?