Will there ever be stability in the mortgage market? That is what many real estate analysts are asking themselves, as the latest data from government-backed mortgage securer Freddie Mac indicates that interest rates have reversed their upward trend over the past several weeks, dropping in the week ending November 21.
The 30-year fixed-rate conforming home loan, which is widely considered the benchmark mortgage for first-time homeowners, was pegged at 4.22 percent at the end of the week, which is down substantially from the 4.35 percent recorded the week before. The 15-year offering, another popular loan agreement that is commonly backed by Freddie Mac and Fannie Mae, also sank from 3.35 percent to 3.27 percent, according to a press release from the loan backer.
There are several factors that are contributing to this tumultuous activity, including a drop in the inflation rate over the course of October, which caused wholesale prices on consumer goods to drop as well as pressure lenders to offer more affordable loan agreements. However, perhaps most significant is the fact that the number of pending home sales reported during the month of October continued a downward spiral that has many industry watchdogs fearing that the housing recovery may be on the verge of another downfall reminiscent of the "bubble burst" that occurred back in late 2007.
The latest Pending Home Sales Index from the National Association of Realtors saw contract signings sink another 0.6 percent during October following a similar slide in September. Compared to the same period last year, the number of signings witnessed are down a total 1.6 percent, which goes against the recent upward momentum property values from coast to coast have experienced over the past 12 months.
While many analysts blame the steady dip in home sales on a lack of inventory that can't keep up with consumer demand, the fact that interest rates on new loans are down indicates just the opposite, as lenders may be trying to entice buyers who are currently apprehensive to take the jump into homeownership.
Another factor being weighed heavily is the lingering effect of the recent government shutdown, which saw Capitol Hill sitting silent for 16 days in the middle of October. During the period, borrowing through government-backed loan agencies essentially froze, and the real estate market was left at a standstill. While the short-term repercussions appeared to be minimal, the fact that partisan politics in Congress continue to keep legislators divided on steps to avoid another government shutdown in January does not bode well for individuals looking to make investments into real estate.
"The government shutdown in the first half of last month sidelined some potential buyers," NAR chief economist Lawrence Yun said in a press release from the group regarding the latest pending sales data. "New mortgage rules in January could delay the approval process, and another government shutdown would harm both housing and the economy."
Because it appears that the national economy isn't yet on a track to recovery that can be sustained, the administration of President Barack Obama is likely to encourage even more federal intervention to stave off another financial collapse rather than let the free market dictate its own course. This means that any plans for reductions in the Federal Reserve's Qualitative Easing program, which has the government purchasing billions in distressed bonds to ease up lending habits, are likely going to be put off.
All of this news indicates that individuals with investments in real estate or those who are depending on their assets to get them through retirement will need to take extra wealth preservation measures to secure their well-earned funds in a difficult fiscal climate.