Economist's Commentary: September 16, 2008

Quick Take on the Economy: September 16, 2008

By Lawrence Yun, NAR Chief Economist

The financial companies were hammered on Monday because the government is no longer willing to provide backup to subprime lending mistakes of Wall Street.
A major fall in the stock market will hamper broader credit availability and economic growth. Because of this, the Fed may cut rates today.
Because the government in essence is running Fannie and Freddie, the mortgage availability will depend solely on government appetite to buy mortgages in the secondary market and independent of the fate of Lehman, AIG, or other struggling financial companies. So far, mortgage rates have come down following the government takeover of Fannie and Freddie.

Consumer Price Index fell 0.1 percent in August. But the strong rise throughout the past 12 months has pushed inflation rising by 5.4 percent - far above the comfort rate of 2 to 3 percent.
The core CPI (excluding the volatile energy and food prices) rose 0.2 percent and is up by 2.5 percent from a year ago.
The recent tumble in oil prices and the slowing global economy will help lower inflation rate in 2009. That will permit the Fed to stand on hold on short-term interest rates for a longer period. We are now projecting the interest rate hike will occur in late spring of 2009.

There is great stress in the financial market, but mortgage will continue to flow.
Mortgage rates this week are much lower than just two weeks ago. Some who were rejected in mortgage approval should reapply. Lower rates make qualifying ratios, such as on debt payment to income, more acceptable.

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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