Mortgages rates fell to 5.07% last week for 30 year fixed loans. That cuts against the theory that the Treasury auctions will push up rates and that the Fed’s decision to stop the purchase of mortgage-backed securities will hurt home loan rates. Many experts believe that rates on home loans could top 6% by the end of the year. Outliers among economists believe that inflation will push mortgage rates even higher.
As rates have crept over 5%, economists have become worried that wary home shoppers, already concerned by housing prices, will stay out of the market, which in turn will harm housing even more. That would create the death spiral that so worries the Administration which is doing everything it can to lower monthly mortgage costs and even reset principles for some troubled homeowners.
The government’s effort to help drop monthly payments for the needy and put $8,000 tax benefits up for first-time buyers and other incentives for any buyer does not attack the housing problem at its roots. What will help the market almost immediately is an underwriting of lower mortgage interest rates. The FHA has tightened standards for loans, which may make sense. But, the tightening only make the problems in the broader real estate market more intractable.
The FHA policy of restricting loans keeps those with poor credit and low down payments out of the market and that is perhaps as it should be. More open standards could cause the kind of buying bubble that caused the housing collapse. But, it is the potential buyer who has the wherewithal to buy a house who is the problem. A click up in interest rates makes him wary of the long-term costs of home ownership. A program that guarantees him 4.5% on his 30-year fixed might make him reconsider his reluctance.
The government has tried nearly everything it can conjure up to improve sales and decrease defaults. Everything but underwriting the long-term costs of owning a home which is the only care many potential homebuyers have.
Douglas A. McIntyre
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