Economist's Commentary: October 2, 2008

Quick Take on the Economy: October 2, 2008

By Lawrence Yun, NAR Chief Economist

Mortgage Rates

• The average 30-year fixed rate mortgage remained essentially unchanged at 6.1 percent this week. This rate is, however, higher than what it had been right after the fed takeover of Fannie and Freddie several weeks ago.
• The spread between the 10-year Treasury note and the 30-year mortgage rate historically had been about 180 basis points. Assuming such a spread, the current mortgage rates should be 5.5 percent. The higher than normal spread is partly due to exceptionally low Treasury rates from the current financial market turmoil with investors seeking safety. It is still a bit frustrating that the mortgage rates have not fallen now that the Fannie and Freddie are under the government control and can borrow pretty much at Treasury rates.

Unemployment Insurance Claims

• A huge leap in the number of people seeking unemployment checks in the past week. Nearly 500,000 showed up for the check for the first time. In all there are now 3.6 million receiving unemployment insurance payments.
• In normal times, only about 330,000 would be filing for jobless benefits for the first time.
• Part of the increase is related to the aftermath of the hurricanes that hit Texas last month.

What does today's data mean for REALTORS® and consumers?

• Layoffs and work stoppages have increased. The unemployment rate is rising.
• The Federal Reserve may cut fed funds rates to stave off economic downturn, but do not expect this move to lower 30-year mortgage rates.
• Mortgage rates are still attractive and near historic lows. Nonetheless, the Treasury and the Federal Housing Finance Agency should do more to buy more newly originated mortgages (unrelated to the $700 billion package) and push down mortgage rates since the government now oversees Fannie and Freddie activity.

Daily Forecast Update

• NAR's monthly official forecast as of September 9th (15K PDF)
• GDP Q3: 0.3%
• GDP Q4: -0.5%
• Unemployment rate at year end: 6.5%
• Average 30-year fixed mortgage rate in December: 6.1%
• Average 30-year fixed mortgage rate by mid-2009: 6.3%
• The next Fed policy change: a rate hike in the fourth quarter of 2009.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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