Economist's Commentary: April 21, 2008

Quick Take on the Economy: April 21, 2008

Freddie Mac , Average 30-year Fixed Rate Mortgage — Another look

This past week, the average 30-year fixed rate mortgage was unchanged at 5.88% this week. However, the average yield on a 10-year Treasury jumped roughly 30 basis points over the same period. Normally the two move in lock step fashion.
But this relationship has softened since the credit-market-meltdown. Normally, the two rates are separated by a 100 to 110 point spread. This spread jumped before stabilizing around 190 in late 2007.
Over the last 5 weeks, this spread surged above 250 and has remained elevated. This spread is created by investors in mortgage backed securities (MBS) demanding a larger risk premium for long-term mortgages versus what these investors view as a relatively, risk-free asset; the 10-year Treasury.
There is substantial room for this spread to shrink as MBS investors' perceptions of risks in the MBS market diminish as government and market actions improve prospects in the credit market.
Consequently, the yield on the 10-year Treasury may rise without a commensurate increase in the 30-year fixed.

National Activity Index - Chicago Federal Reserve Board

The index reading for March (-0.78) was an improvement from February (-1.28), but is substantially lower than the same month in 2007 (0.05).
The substantial declines in consumer and housing demand coupled with rising layoffs have weighed heavily on the index, which has fallen below trend since late last summer.

What does this mean for Realtors® and consumers?

Long-term mortgage rates are likely to remain low through the spring and early summer of 2008.
Economic activity is still off the mark, but not in free-fall. The economy is likely to remain sluggish, which will help to keep mortgage rates low.

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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