Economist's Commentary: September 15, 2008
Quick Take on the Economy: September 15, 2008
By Ken Fears, Manager, Regional Economics 
Risk Premium on Mortgage
- Prior to August of 2007 and the credit crisis, the difference between the average rate on the 30-year fixed rate mortgage (as tracked by Freddie Mac) and the U.S. 10-year Treasury bond averaged roughly 150 basis points or 1.5 percentage points.
- Since the crisis, this spread expanded to as much as 271 basis points. In the week prior to the government's announcement of the take-over of Fannie Mae and Freddie Mac, the spread was 269 basis points. Three days after the takeover, the spread fell to 220 basis points.
What does this mean for Realtors® and consumers?
- The government's intervention in the GSEs has clearly strengthened the market's confidence by reducing risk. Lower risk will result in lower mortgage rates for borrower. This spread remains elevated from its historic high, so there is room for rates to come down further as the problems in the financial market are resolved.
- Lower rates will help to stimulate sales of real estate
Daily Forecast Update
- NAR's monthly official forecast as of September 9th (15K PDF)
- GDP Q3: 1.7%
- GDP Q4: 0.8%
- Unemployment rate by election time: 6.2%
- Average 30-year fixed mortgage rate in December: 6.2%
- Average 30-year fixed mortgage rate by mid-2009: 6.7%
- The next Fed policy change: a rate hike in March 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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