Friday, September 12, 2008

Light at the End of the Tunnel?

With the Fannie Mae & Freddie Mac bailout this week we saw a 1/2% drop in the 30yr fixed mortgage rate. And some economists are predicting rates will drop further, possibly to the mid 5% range. So while the lower rates could spur a refinance boom, the hope is that it will help bring support to housing prices and subsequently stabilize the market.

Fixed-rate mortgages under 6%; biggest weekly drop in 28 years (USA Today, 09/11)
"Interest rates on U.S. 30-year, fixed-rate mortgages dropped by 0.42 percentage point in the past week, the biggest seven-day drop in more than 28 years, Freddie Mac says. The fixed rate is now at its lowest in five months"

A call for a housing bottom worth listening to (CNN Money, 09/11)
"The bottom of the housing market is coming into view," said Zandi, whose recent book "Financial Shock," examines how the subprime mortgage crisis occurred. "House prices, based on the S&P Case-Shiller index, are down 20% peak-to-trough and I expect them to fall another 5% to 10%.""The key is housing affordability," Zandi said. "The [price] decline is beginning to restore affordability, which is now near its long-term average. In some places, Boston, Chicago, Denver, Orange County, affordability has been restored and those markets have stabilized."

Supply of Homes for Sale Declines in Metro Areas (WSJ, 09/11)
"The supply of homes available for sale in 29 major metropolitan areas in August was down 2.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif."

So maybe we're closer to the 7th inning as opposed to the 3rd inning as Nouriel Roubini suggests. But the credit market remains a shadow of its former self. Guidelines are more restrictive than they were just 6 months ago and the trend of tightening will continue. The fact is, fewer folks qualify for mortgages these days.

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