What are the Feds going to do?.....
I just read an excerpt from an interview of executives from two large real estate firms in the United States; – the same day I attended our company Awards Breakfast at which we were treated to an update by Steve Harney, my “main man” when it comes to getting up to date information on what’s happening in the real estate economy. Guess what! The messages are in direct conflict about the future role of the Federal government in the housing market. It’s no wonder buyers and sellers find it difficult to predict what’s going to happen!
A little background – banks can sell their mortgages on the secondary market to Fannie Mae and Freddie Mac. The mortgages are then “bundled” and sold to private investors. In the past, these investments were very secure, but with so many homeowners’ currently in default and foreclosure, fewer investors want to risk their money on mortgage backed securities. To take the risk, investors want more interest. The Treasury Department and the Federal Reserve Board are purchasing these securities from Fannie Mae and Freddie Mac, the goal being to free up money and maintain lower interest rates so that buyers can get mortgage financing. According to the real estate executives in the interview, the Treasury Department is prepared to continue financial support to Fannie Mae and Freddie Mac for at least the next three years. Furthermore, the government is prepared to be involved in the housing industry for as long as it takes to keep the economy moving in the right direction. On the other hand, Steve Harney has stated that the contributions from the government to Fannie and Freddie have just about reached the levels committed to, and that after March 31st, the government may back off and allow the mortgage markets to adjust independent of government intervention. Furthermore, Harney commented that the President only briefly mentioned the real estate market in his latest address, indicating that the administration intends to turn its focus away from the housing market.
Both the executives interviewed and Steve Harney agree that less involvement by the Feds will most likely mean a rise in interest rates. According to the executives, a 1% increase in interest rates will hardly be felt in the real estate industry as a whole and is not enough to slow down sales, given that home prices are still low. Steve Harney takes the view of the CONSUMER. A 1% increase in interest rates has a large impact on buying power, translating into a higher monthly cost for the same home. In other words, higher interest rates mean YOU will get less “bang for your buck.
Posted by:
Cathy Butschke
Leave a Comment