Monday, January 05, 2009

HISTORICALLY LOW HOME-LOAN RATES WILL HELP EASE THE CREDIT CRISIS

Decades from now America’s recession-battered homeowners will look back on 2008 as the “Year of the Great Credit Crisis,” and likely compare it with the Depression years of the 1930s, analysts say.

In hard times such as these it is important to remember that America struggled through—and survived—the Great Depression. In fact, history shows this great nation has rebounded from several depressions, recessions, financial panics, and stock market crashes.

We’ve also made it through World Wars I and II and other armed conflicts, including the Korean War, the Vietnam War, and the Cold War with the fear of nuclear attack. Now, we are involved in wars in Iraq and Afghanistan, while battling the threat of worldwide terrorism.

While economists predict the credit crisis and housing recession likely will continue into 2009 and perhaps 2010, there is exceptionally good news to report.

The recent downward shift in mortgage interest rates to the lowest levels American homeowners have seen in nearly a half century is an extremely positive turn of events, veteran analysts say.

After the Federal Reserve Board lowered the federal funds rate to a rock-bottom range of zero to 0.25 percent in late December, some lenders slashed 30-year fixed home-loan rates to bargain-basement levels—the mid-4-percent range—for the first time in nearly 50 years.

Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages averaged 5.10 percent at the end of December, down from 5.14 percent a week earlier. The average 30-year fixed home-loan rate has not been lower since the survey was started in 1971.

Now, Realtors say they are optimistic that this incentive will spark home buying in the New Year, according to Pat Callan, president of Illinois Association of Realtors (IAR).

“We are encouraged by the Federal Reserve Board’s action to get our economy moving again with lower federal funds rates,” Callan said.

“The IAR has been calling for mortgage-rate reductions and recent action to drive down interest rates should be attractive to home buyers who have been waiting on the sidelines to enter the market,” Callan said. “With interest rates the best they have been in nearly 50 years and peak inventory levels, there are unique buying opportunities.”

Dr. Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory (REAL) of the University of Illinois, said: “The combination of lower mortgage interest rates and a major infrastructure investment program that is anticipated from President-elect Obama’s administration offer the best hope for some turnaround in the housing market in the next year.”

However, stringent lending and appraisal standards have slowed the flow of affordable mortgage money to eager home shoppers, Realtors complain.

“Realtors are urging the federal government and mortgage industry to address continuing problems that are impeding the delivery of mortgage credit to potential home buyers,” noted David Hanna, president of the Chicago Association of Realtors.

“Mortgage insurers need to make sure they have not over-corrected and added unnecessarily strict underwriting standards preventing people from qualifying for a mortgage,” Hanna said. “The lack of practical and affordable loans will continue to stymie the recovery effort.”

“Now is not the time to limit mortgage availability if we want to see improvement in the housing market,” Callan said.

Despite sharply lower home-loan rates, resale home sales continue to slump in the nine-county Chicago area.

According to the IAR’s latest report on resale home sales in the Chicago area, the year-to-date median resale home prices were down 4.9 percent to $242,000 compared to $254,500 in the period January through November 2007. In the month of November, the median home sale price slipped 15.9 percent to $207,745 from $247,000 in November 2007.

Year-to-date January through November 2008 sales for the Chicago area were down 26.5 percent to 64,445 homes sold compared with 87,624 homes sold in the same 11-month period in 2007. In November, home and condominiums sales totaled 3,910 units in November of 2008, down 32.3 percent from 5,774 units in November of 2007. The survey includes Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will counties.

In Chicago, the median price of resale homes and condos in November was $222,500, down 23.3 percent from $290,000 in November 2007. Home and condominium sales were down 41.3 percent to 1,057 units in November of 2008 compared with 1,801 units in November of 2007.

“The housing market was stalled in November due to a deepening recession which hit our economy with blunt force this fall. No one should be surprised at these figures given what happened with the financial markets in the past few months,” said Callan.