 |
||||||||||||||||||||||||||||||||||
|
December 23, 2008
We have had a Holiday present from the government. Yes, the Federal Reserve Board has lowered short term rates close to zero. Yes, long term Treasuries are close to 2.0%. Yes, the government continues to facilitate the lowering of rates on mortgages by declaring their intention to support the markets for mortgage by purchasing mortgage-backed securities. However, don’t even think about it. As much as we have said that the rates on mortgages must fall in order to facilitate a housing and thus economic rebound, they are not going to zero percent. They are not going to two percent. Why not? The Fed controls short-term rates. When short-term rates go very low, the threat of long-term inflation increases. And it is this threat of inflation that will keep rates on longer-term loans high. There is no inflationary threat now, but there is the specter of inflation on the long-term horizon. This is especially true because the government is currently spending trillions on fiscal stimulus. In addition, the fact that long-term Treasuries are moving to 2.0% is a direct result of a flight to safety during a crisis. There is no safer place to put investments than bonds backed by the US government. Mortgages are certainly not considered a safe investment. When the crisis abates, which will be good news, rates on Treasuries will rise. But if the end of the crisis brings a housing recovery, it does not mean that rates on mortgages will rise significantly because they will become a safer investment. The message? We have the lowest rates in almost half-a century. Don’t be waiting for better news!
Current Indices For Adjustable Rate Mortgages
Fannie Mae, the battered mortgage giant, has agreed to act as an interim landlord for thousands of tenants living in foreclosed homes around the country. Fannie will sign new leases for the approximately 4,000 renters in its foreclosed properties, said spokesman Brian Faith. These tenants would otherwise face eviction, even if they had been paying their rent on time, because of the owners’ failure to pay the mortgage on the property. The policy will go into effect on Jan. 9, Faith said. He said Fannie will observe an existing moratorium on new evictions. Both Fannie and Freddie Mac have agreed to temporarily hold off on evictions. "Hopefully, this is a signal to the private sector that tenants have rights," said John Taylor, president of the National Community Reinvestment Coalition, an advocacy group. "What we don’t need to be doing, during the economic crisis, is to create additional stresses on our housing industry by evicting tens of thousands of families who are paying their rent." Source: CNN/Money Nonresidential construction is slowing rapidly, the American Institute of Architects says. The AIA released its Architecture Billings Index on Wednesday. The index, which forecasts construction spending nine to 12 months in advance, hit a record low in November, the second month in a row. For the past two years, commercial construction has remained strong, employing people who previously worked on residential projects. But the credit crisis has meant that investment in construction projects has disappeared. "The only spending we will see in nonresidential [next year] is what has already started," said Joel Bloomer, senior equity analyst for Morningstar. "As construction in general falls, I expect more than just construction employment to suffer," Bloomer said. "Employment in every industry that has benefited from commercial real estate investment should slow – architects, engineers, janitorial, hospitality, building material manufacturing, commodity input providers, distributors." Source: Washington Post
|
||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||
Don’t Even Think About It 
The Markets. Mortgages fell to their lowest levels in 37 years in the past week. Freddie Mac announced that for the week ending December 18, 30-year fixed rates averaged 5.19%, down from 5.47% the week before. The average for 15-year fixed fell to 4.92%. Adjustables fell less precipitously with the average for one-year adjustables decreasing to 4.94% and five-year adjustables falling to 5.60%. A year ago 30-year fixed rates were at 6.14%. "Fixed mortgages fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971," said Frank Nothaft, Freddie Mac vice president and chief economist. "The decline was supported by the Federal Reserve announcement on December 16, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant."
The National Association of Realtors applauds the actions of the Federal Reserve Board in lowering rates for home buyers and homeowners who need to refi. This will significantly impact housing sales, home valuations, and the nation’s overall economy. The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets. “NAR has been aggressively calling for home-loan rate reductions, and the Fed’s action to slash rates, coupled with the actions by the Federal Housing Finance Agency and the Department of the Treasury, has driven down rates to make the dream of homeownership once again attainable for thousands of Americans,” said NAR President Charles McMillan. Rates, which had averaged 6.3 percent in the third quarter, have recently fallen below 5.0 percent in some parts of the country. “That is the lowest rate in nearly 50 years and will bring buyers back to the market,” McMillan said.NAR has estimated that a one percentage point decrease in rates will increase home sales by more than 500,000 homes. “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market.” McMillan said. “Lower rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.” Source: NAR