(7/19/2012) -Federal Reserve Chairman Ben S. Bernanke warned legislators
on Capital Hill this week the nation could fall off a "fiscal cliff" if
Congress failed to extend tax breaks before the New Year.
His referece was weak employment that left the
national unemployment rate at 8.2 percent in June, unchanged for two
Bernanke also referred to manufacturing, retail and other troubled
employers who added only a paltry 80,000 jobs for the month. Uncertain if
the economy will regain enough strength to support more hires, and concerned
the global economy will cost them sales, employers are keeping operating
budgets in the bank.
It's been a bleak week, but the glass is half full.
The good news is found in two recent federal reports pointing to
long-term low mortgage interest rates and to the sleeping-giant
potential of a housing market shaking off a long hibernation.
"In particular, the Committee decided today to keep the target range for
the federal funds rate at 0 to 1/4 percent and currently anticipates that
economic conditions - including low rates of resource utilization and a
subdued outlook for inflation over the medium run - are likely to warrant
exceptionally low levels for the federal funds rate at least through late
2014," the Fed reported.
Note the "at least."
The failing economic environment has nearly halved mortgage interest
rates on 30-year, conforming fixed rate mortgages since the height of the
market. Rates averaged 6.76 percent in July 2006 and came in at 3.56
percent, the week ending July 12, according to Freddie Mac.
Today's rates make housing exceptionally affordable, at least on
A $250,000 mortgage today would cost, on average, $1,131 in mortgage
payements. At the height of the market, the monthly payment would have been
$1,623 for the same loan - nearly $500 more.
That's a mint to a typical middle-class family.
Economy's rising star
On the other good-news front, word on the street, literally, is that
"residential housing markets remained largely positive," according to the Beige Book, which isn't so blue anymore.
The Fed's book summarizes comments received from boots-on-the-ground
businesses and experts in the field, throughout the banking systems 12
districts, discussing conditions in a variety of economic sectors, including
housing and mortgage lending.
Housing was one of the few bright spots in the economy.
"Sales were characterized as improving in Philadelphia, New York,
Richmond, Chicago, St. Louis, and Minneapolis, while home sales increased in
Boston, Cleveland, Atlanta, St. Louis, Minneapolis, Kansas City, Dallas, and
San Francisco," the report said.
Long awaited new home construction, a powerful job generator, increased
in the large New York, Atlanta, St. Louis, Minneapolis, Dallas, and San
Due to squeezed inventories, "Homes prices have begun to stabilize in
some markets and price increases were noted in select markets," according to
The credit squeeze, forcing shelter-seekers into rentals, helped boost
rental construction and rents in Boston, Atlanta, and St. Louis and demand
strengthened in the San Francisco District.
Thanks to low interest rates, the report also said loan demand was up
with the number of refinanced mortgages steady to increasing in New York,
Cleveland, Richmond, and Chicago.
Not every district revealed glimmers of solid, if slow recovery, but the
report was one of the best on record in recent
Yes, it's a Catch-22 economy.
Housing is an economic cornerstone, but jobs is the mortar that glues it
all together. Even as credit loosens, lenders will continue to shun pink
Bernanke told Congress, "A number of factors continue to impede progress
in the housing marketŠmany would-be buyers are deterred by worries about
their own finances or about the economy more generally. Other prospective
homebuyers cannot obtain mortgages due to tight lending standards, impaired
creditworthiness, or because their current mortgages are underwaterŠthe large
number of vacant homes, boosted by the ongoing inflow of foreclosed
properties, continues to divert demand from new construction."
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