The real estate market has been meandering along with little purpose for a long time, trying urgently to locate firm ground anywhere from which to launch something resembling a rebound. That it is in a position like this at all it can thank the government for. Despite what the FHA, Fannie Mae and Freddie Mac have done, the Fed has easily been the main dynamo supplying badly needed liquidity to the secondary mortgage market, where it has been actively buying MBS, or mortgage-backed securities. It quickly and prudently filled in the void left by the private investor when the housing sector dramatically nosedived.
The Fed months ago drew plans to exit the mortgage business, which really isn't its cup of tea anyway, and thus let the private sector return to handle it, as it should. The back stop was set at the end of March, 2010, a date right around the corner. The concern among many real estate observers was that home loan interest rates would start increasing as the deadline approached. Well, thus far it hasn't happened and that leaves the Fed especially hopeful. But once April rolls in, mortgage rates may begin moving higher. Some predict to 5.5%, some all the way to 6%. But that's just guessing.
Las Vegas mortgage borrowers beware of the potential shift
Southern Nevada housing market - with communities such as North Las Vegas, Henderson, Summerlin, Southern Highlands, Mesquite, Anthem and Spanish Trail - has been as big a beneficiary of Fed's mortgage market participation as any area in the country. Low rates have enabled first-time real estate buyers get pre-approved and bid on listings sporting price tags unheard of for over a decade. Indeed, so much so that the once infamous buyer's market in the lower end of the price scale in Las Vegas has turned into a robust seller's market. Without the Fed's generous hand this would've been just a distant dream.
But, the anticipated mortgage rate rise may throw a wrench into this scenario, to the detriment of Sin City's hoped-for housing recovery. It'd be more psychological than actual, though. Let's say the rates for 30-year fixed go from 5% to 5.5% in the next several months. On a $150,000 mortgage that would amount to only a $46.00 principal and interest hike. Nothing earth-shaking here. In any case, it would predictably slow things down as some prospects would choose to throw in the towel, at least temporarily.
The best news from the Fort - the Fed headquarters in Washington does in some ways resemble a fort - is that it'll closely monitor mortgage rate direction over the next several months and if need be, it'll resume buying MBS. The housing sector is key to an economic recovery that some say is about to take hold, so the Fed wants to be right on top of anything that might sidetrack it. If the private sector fails to show up in sufficient numbers, as it well might due to its own problems and the perceived unacceptable risk still clouding the U.S. housing market, the Fed will ride to the rescue flags fluttering.
photo by wjklos