Economist's Commentary: July 14, 2008

Quick Take on the Economy: July 14, 2008

By Lawrence Yun, NAR Chief Economist

Fannie/Freddie Support

• The Federal Reserve and the Treasury, by opening credit lines, have in essence made "implicit" government guarantees of Fannie and Freddie debts as explicit guarantees.
• This does not mean shareholders of Fannie and Freddie are getting a free ride. The price of stocks may not get help at all.
• The new action just means that money will continue to flow into the mortgage market. Global capital providers or the Fed will provide funds to Fannie and Freddie, who in turn will buy mortgages from lenders - who in turn will make mortgage loans to consumers.
• Once the housing market stabilizes in a year or two, the Fed could impose more stringent underwriting standards and unwind credit lines. The 20 to 40 basis points lowering of the mortgage rates due to the presence of Fannie and Freddie could then disappear.

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

• Mortgages are available those meeting traditional underwriting standards at still historically low mortgage rates.
• FHA loans are also open for business and will play a greater role over time.

Daily Forecast Update

• NAR's monthly official forecast as of July 8th (250K PDF)
• GDP Q2: 1.5%
• GDP Q3: 1.8%
• Unemployment rate by election time: 5.8%
• Average 30-year fixed mortgage rate in December: 6.6%
• Average 30-year fixed mortgage rate by mid-2009: 6.7%
• The next Fed policy change: a rate hike in December 20

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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