Tuesday, November 25, 2008

Help for Homeowners

Today's Fed announcement marks another step towards getting the housing market un-slumped. Finally, Hank and Ben seem to be getting it: the world's financial meltdown started in the US housing market and the solution should begin by focusing on housing.


Recently, mortgage industry heavyweights Countrywide (now Bank of America), JP Morgan and Citigroup announced a foreclosure moratorium to help struggling homeowners stay in their homes. Citi especially said their efforts would be aimed not only at homeowners behind in their payments, but those who's credit profile reveals they might get behind.


Today's new Fed housing stimulus package should make mortgages more affordable by pushing long-term mortgage interest rates down as much as a half-point. This should help new homebuyers jump into the market. (click the link for a breakdown of program details)


Some expect rates to fall to 5.50% soon. The National Association of Realtors (NAR) estimates that each 1-point drop in mortgage rates spurs 500,000 new home buyers into purchasing a home. NAR says it'll keep pushing the Fed to enact programs and policies that will eventually get mortgage interest rates down to 4.50%, a rate not seen since well, not in my lifetime.


Here's a chart of the history of mortgage rates, courtesy of my broker The Phoenix Real Estate Guy (see his post with many more charts here).


30-year-fixed-historical-mortgage-rate-trend-chart-lgIt's interesting to compare the recent history to the truly historic data, based on a chart posted at The Financial Forecast Center. Seems like rates haven't been at 5.50% since sometime in 2004, and haven't been at 4.50% since about the late 1950's.



30-year-fixed-historical-mortgage-rates-1949-to-1997Our housing problem is generally twofold - (1) too many homes for sale and more hitting the market daily due to swelling foreclosures, and (2) not enough buyer interest.

The Fed's announcement today, combined with the foreclosure moratorium announced recently gives me real hope that the kinks might start working out soon.

Banks working to keep homeowners in their homes means less foreclosure homes going up for sale. The Fed making substantive moves to coax new homeowners into the marketplace means eating up some of the excess inventory of homes for sale.

This? Could be the beginning of real change.

Tune in tomorrow for a breakdown of the local Phoenix housing numbers, and how we'll know we've begun to turn the corner towards recovery.