According to reports this morning, the U.S. Federal Reserve is delivering what they promised. We are in a state of historical low mortgage rates and the subsequent refinancing activity that followed the rate decrease of the past six months is putting more money back into the economy through more usable income in the hands of home owners.
The 30-year mortgage rate has now fallen to week over week record lows of late. According to Freddie Mac, it hit 4.78 percent as an average last week according to their weekly survey. In a statement from Frank Nothaft, Freddie Mac VP and Chief Economist, "Mortgage rates followed other interest rates lower this week amid reports of slower economic growth. The final estimate of economic growth in the fourth quarter was revised lower and personal incomes fell 0.2 percent in February, below the market consensus."
“On a positive note, pending existing home sales rose 2.1 percent in February, marking the second increase in three months as potential homebuyers are taking advantage of historically low mortgage rates and falling home prices. Serving as a spur to sales, housing affordability reached an all-time high in February 2009 since the series' inception in 1971, according to the National Association of Realtors®. By region, sales surged by nearly a third in the Northeast and Midwest, but fell in the West.”
As would be expected through refinances and early Spring new home purchases, mortgage applications rose for the fourth week in a row last week.
As Bloomberg reported, “It certainly gives further fuel to consumer spending,” said Nicholas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts. “It puts more money into circulation.”
Bernanke stated all the way back in November of last year, “It is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met." At this point the Fed went on a tear buying up billions in mortgage backed securities which in turn caused the largest drop in mortgage rates in the last decade. This move was followed up last month when the Federal Reserve boosted their mortgage-backed securities buy up program to over a trillion in assets with the intent to lower mortgage rates and make the financing of real estate easier for more Americans.
For all of the criticism toward Bernanke in the early years of his tenure following the hallowed Greenspan, Bernake's mortgage-backed securities purchase program may help shorten the current recession after all. Gerald O'Driscoll, of the Cato Institute commented that if you target the mortgage market through throwing money in that direction, it is certainly making an attempt at least in speeding up the process of hitting a floor in the price of housing.
Affordability in housing is also hitting all-time highs across America, so says the National Association of Realtors. Home sales 5.1 percent in February from the prior month. The affordability index to a recent high of 173 showing that when you take into account current home prices, mortgage rates, and median incomes across the U.S., that housing is at its' most affordable levels in years. In 2006 at the height of the housing boom, the index was only at 108 in comparison.
Bernanke pointed to lower mortgage rates as proof that Fed policies were working, noting that rates had fallen “nearly 1 percentage point” since the program was announced, and actually rates are roughly 1% lower than they were at this time last year.
The author Hank Bailey is real estate broker in the state of Georgia. He blogs at athensproperties.wordpress.com/.
hankbailey@kw.com
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