Affordability, low rates, desire to buy provide hope for the U.S. housing market
Housing affordability now stands at its best level since 1971. This greater affordability helped boost home sales
in February. Especially strong was the activity attributed to first-time home buyers, who represented half of new
home purchasers this month. The $8,000 tax credit helped move many of these first-time buyers out of their
rentals and into their own homes.
In light of weakening global economic indicators and a poorly functional financial system, the U.S. government
and Federal Reserve remain proactive, with the Federal Reserve alone purchasing and holding up to an
additional $750 billion of agency mortgage-backed securities and $100 billion more in housing agency debt.
The Fed moves are designed to provide greater support to mortgage lending and housing markets.
While economists expect continued softness in the overall housing market, encouraging buyer signs abound
given the historically low mortgage rates and the availability of distressed properties. There are localized
opportunities for savvy investors and for those buyers who are qualified, willing, and ready to buy on the cheap.
And with rates at historic lows, the question for many borrowers becomes, how long will the good times last?
The Fed’s actions and mounting federal deficits could weaken the dollar and spur the aforementioned
inflationary trend, which could send interest rates back up.
In addition, the first-time home buyer tax credit
expires at the end of November. Prominent economists maintain that low rates should be available for “at least
the next several months.” But if fears of inflation cause investors to shun Treasurys, the Fed’s impact on longterm
interest rates could be short-lived.