SDB Club Benchmark Real Estate

Mortgage rates improved yesterday on news from the Federal Reserve Board chairman Ben Bernanke. Bernanke said “The FOMC anticipates that economic conditions are likely to warrant maintaining the federal funds rate at exceptionally low levels for an extended period”.

Bond traders quickly bought up bargain priced Mortgage Backed Securities pushing mortgage rates down by 1/8th – 1/4%. Bond traders and pundits have commented recently that they would like to hear clear direction from the Fed concerning their policy on inflation concerns. Bernanke gave them some of what they wanted saying “it is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation”.

The Federal Reserve has committed billions of dollars to the purchase of mortgage backed securities in hopes of keeping long term interest rates low. Bernanke pointed at recent improvements in the credit market saying “Our purchases of agency mortgage-backed securities and other longer-term assets have helped lower conforming fixed mortgage rates. And better conditions in financial markets have been accompanied by some improvement in economic prospects. Consumer spending has been relatively stable so far this year, and the decline in housing activity appears to have moderated”.

Hard hit areas by the real estate bubble like Florida and California are reporting they may have seen the bottom. Although their recovery will be long and drawn out, the bottom may be at hand. Lower mortgage rates will be important to the recovery of the housing market, but along with that employment and the credit markets must improve. Without jobs or the ability to obtain credit low mortgage rates will not have the impact they had in past recessions. Unemployment is known as a lagging indicator but we are in uncharted territory, do not expect this recovery to look like those of the past.

The next few days will be important for mortgage rates, if bond traders keep their appetite for mortgage backed securities mortgage rates will continue to improve. This will be good for both home buyers and home owners as they take advantage of the lower rates with refinances.