Real Estate Market

Mortgage rates, housing market shine through dismal economic clouds

(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 consecutive months.

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.

Economy's star

Low mortgage interest rate records just keep coming and could continue right through 2014.

In June, during the last Federal Open Market Committee meeting, the Fed reiterated plans to keep benchmark rates low, perhaps for the next two years.

"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 paper.

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 Francisco Districts.

Due to squeezed inventories, "Homes prices have begun to stabilize in some markets and price increases were noted in select markets," according to the report.

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 years.

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 slips.

Bernanke told Congress, "A number of factors continue to impede progress in the housing marketÅ many 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 underwaterÅ the large number of vacant homes, boosted by the ongoing inflow of foreclosed properties, continues to divert demand from new construction."



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