Fed Action Means Lower Mortgage Rates are on the Way

Yesterday, the Federal Reserve announced some very aggressive steps aimed at unlocking the sluggish credit markets, with a major focus on further lowering mortgage interest rates. The Fed said it would significantly expand its ongoing program of buying Fannie Mae and Freddie Mac mortgage-backed securities (MBS) and debt. The Fed increased its planned MBS purchases by $750 billion, making the new target $1.25 trillion, and doubled its slated debt purchases to $200 billion. In addition, the Fed announced a new program to buy up to $300 billion in long-term Treasury bonds over the next six months. These initiatives are just the thing NAHB has pushed for in our recent meetings with Federal Reserve officials and should send a strong signal to consumers that homes can be purchased on very favorable terms.

Mortgage rates should drop significantly in response to the Fed moves. Some lenders have already lowered posted rates by a quarter of a point. This should be encouraging news for potential home buyers who have been sitting on the fence, waiting for the right reason to get back in the market.

Some dealers have indicated that the 10-year Treasury rate could test the December lows of just over 2%. It is anticipated that the majority of the Fed’s Treasury purchases will be centered on the 5-10 year sector, which will have the most influence on mortgage rates. The immediate result was a widening of MBS spreads as Treasury yields collapsed on the announcement of the new Fed Treasury purchase program. This presents an opportunity, however, for the Fed to methodically drive down this spread, as they proceed in acquiring the enormous volumes of Fannie and Freddie MBS and debt as outlined in the March 18 announcement.

You can click here to read the Fed’s official announcement.

If you have any questions, please feel free to contact Dave Ledford on the NAHB staff.

Keeping the Faith

Rusty MacLachlan

HBA President

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Hope Springs Eternal

Good News! Good News!  Good News!  The St. Louis Cardinals are still in first place.  Well so are the Cubs for that matter.  But, opening day is just around the corner and our beloved redbirds are sure to have a banner year.Wow, a little good weather does great wonders for our spirits.  

We just cannot help but believe that winter is over.  The grass is greening up, the trees are budding, the flowers are beginning to bloom.  The signs are all there.  To be sure, there are still a few cold days ahead, but there is just no disputing that spring is pushing winter aside.

We also are seeing early signs that the housing slump is losing steam as well.  Just this week the Wall Street Journal reported that “Home prices are closer to stabilizing today than at any time in the past nine years.”  The data points to a housing affordability index that is at the exact ratio that we last saw in the hay days of the 1980’s.  Of course the hot news on the national press in the last few days celebrated the 22% uptick in national housing starts from January 2009 to February 2009.  This ended 18 consecutive months of decline.  Encouraging news on the national scene!

Locally we can expect our market to rebound even sooner than most.  Zanola Research Group suggests that we need to build 666 homes this year in Greene county alone just to keep pace with demand.  The report went on to point out that southwest Missouri is continuing on a long pattern of job growth.  We see all the reports of job losses but research shows that new jobs outpace job losses in our area.  Add growing wages and a steady climb in population and we are three for three in those areas that matter most for a housing rebound.

Three for Three, that reminds me of baseball.  Yes, opening day is almost here.  Looks like busy days ahead.  God bless!

Keeping the Faith

Rusty MacLachlan

HBA President

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