Q How does the recent drop in mortgage interest rates affect the resetting of adjustable-rate mortgages (ARMs)? In other words, will the drop in interest rates suggest that when an ARM resets it will be lower that it would have been without falling interest rates?

ALFREDO

A It's hard to find good news when it comes to residential real estate. Zillow.com, the real estate website, calculates that home values plunged by $2 trillion in 2008.

On Tuesday the National Association of Realtors reported that sales of new homes fell to a 17-year low in November. Sales of existing homes were down 10.6 percent from a year ago, according to the real estate trade organization. It also said that the national median home price fell to $181,300 -- down 13.2 percent from a year ago. That represents the biggest decline recorded since the Realtor group began gathering data in 1968. Odds are that the downward momentum in the housing market is gaining momentum as we enter the new year.

That said, there are glimmers of good news. First, I think you are right: The widely anticipated adjustable-rate mortgage market implosion will be smaller than expected. Of course, far too many homeowners will end up in a financial bind, but not anywhere near the numbers anticipated when it appeared that interest rates would be higher than they are now. The combination of rate cuts engineered by the Federal Reserve, the recession at home and abroad, emerging deflationary pressures in parts of the global economy and a flight to financial safety have driven short-term interest rates to extremely low levels -- spelling relief for many anxious holders of ARMs.

For instance, as I was writing this column, the three-month Treasury bill yield was 0.02 percent. That's essentially a zero interest rate. The one-year Treasury was at 0.38 percent and the five-year Treasury note was 1.41 percent. The six-month Libor rate, another common index for ARMs, is at 1.85 percent. Still, whether the homeowner with an ARM that resets soon comes out ahead or not depends on the terms of the loan, and the specifics vary a lot.

Second, thanks to an interest rate drop in 15- and 30-year mortgages, it's financially savvy for many homeowners to refinance into a lower rate. The problem is, the pool of qualified applicants is relatively small compared with previous refinancing booms, because lenders are interested in serving only those who have good credit scores and equity in the homes. Still, it pays for homeowners to run the numbers and see if they can refinance out of an ARM into a fixed-rate mortgage or refinance a fixed-rate mortgage to get a lower rate.

Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org, or to kaching@startribune.com. Put "Your Money" in the subject line.