On Monday, all of the financial world turned its ears to announcement that the United States is indeed in a recession, confirmed by the National Bureau of Economic Research. Of course, most of us who have followed the state of the economy already knew this, and are likely shaking their fists at the powers that be and the Kool-Aid drinkers, collectively crying “Told you so!”
The recession, as many of you are already aware of, began as a result of declining home values, and many analysts have stated that the economy will continue to deflate until the housing markets show signs of recovery.
There have already been some positive news bubbling up in the housing market. Mortgage applications increased by a record amount last week, spurred by the Federal Reserve’s announcement that it would purchase mortgage-backed securities, and would be open to making further cuts in prime interest rates.
Additionally, sales in some of the country’s most depressed regions have been recovering, including California and Florida. These regions happen to be the wealthiest of wealthy, so as always in real estate, location is everything. Last month in California’s Orange County region (where yours truly spent some of his college years, yes that OC) sales rose 66% year-over-year. That figure is an astonishing jump, something that should have the market cheering.
Now, the Treasury is mulling a plan that will push mortgage interest-rates down to 4.5% with some help from Fannie and Freddie, after last week announcing that they would be purchasing mortgage-backed securities in an effort to restore liquidity. It’s hard not to be suspicious of plans to artificially inflate a sagging market, especially when it is beginning to show signs of recovery on its own. Artificially low interest rates are what contributed to the boom and bust in the first place. Touting them as a solution seems astoundingly short-sighted, especially when our nation’s spending limits could be cut by nearly $2 trillion, via lines of credit that banks will be reducing or eliminating in order to shore up their balance sheets. Analysts are saying that this could potentially cause housing prices in some areas to drop by another 20%. By that line of thought, banks would essentially be corroding their own balance sheets. Is that what million-dollar executive salary structures are for? To restrict liquidity to consumers when the Fed and Treasury are trying their hardest to restore that liquidity?
One thing is for sure: anyone who has waited until now to buy a home in this decade should be feeling fairly good about themselves.
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