Is Fed Poised To Kick Crutch Holding Up Housing Market?
HOME LOANS, INDUSTRY NEWS, TIPS FOR BUYERS, TIPS FOR SELLERS
January 26th, 2010
Low interest rates enjoyed in 2009 by home buyers and homeowners refinancing may be history come March. The Federal Reserve propped up the ailing housing market by quietly buying up mortgage-backed securities and lowering key interest rates which influence costs for consumer borrowing. Lenders loaned money only because they knew government sponsored enterprises (GSE’s) were willing to buy them. The investor pool that normally buys these securities seized up during the housing meltdown forcing the government to step in before lending came to a grinding halt.
Now the Feds have decided it’s time the lending industry stand on its own. Investors will need to step up and buy mortgage-backed securities or home loans will become extremely difficult to find. Banks rely on investors to buy these loans to back-fill their balance sheets with money to loan to future mortgage seekers.
Some believe there is a pent up demand in the private sector to buy these investments. The big question is will they be willing to buy at the artificially low mortgage rates or will they demand higher returns? Some predict rates will rise to 6% or possibly 7% or higher for the popular 30-year fixed rate mortgage in order to satisfy the rate of return demanded by private investors nervous about the health of the housing sector.
The Feds may have to once again support the financial markets if they don’t buy these securities at auction. Fannie and Freddie GSE’s are ready, willing and able to buy up to $300 billion in mortgage securities during 2010 if called upon to do so. Private industry does not want government in the loan, banking or car manufacturing business so this is the next logical next step-assuming the private sector loosens their purse strings and gets back to churning money through the economy.
Other factors that could derail a housing sector recovery include:
- Tightening of FHA loan rules regarding credit and downpayment requirements
- Investors buying stocks and bonds with capital previously used to buy mortgage securities
- Expiration of federal tax credits for home buyers
- Banks destabilizing home prices by clearing their books of foreclosed properties
Lending industry insiders predict the volume of loans funded in 2010 will be half that of 2009. This could lead to the double dip recession experts have been warning about, especially in areas like ours with a fragile economy.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL SALES EXPERIENCE
