RISMEDIA, February 10, 2010—The Treasury Department and the Federal Reserve Board have been purchasing mortgage-back securities from Fannie Mae and Freddie Mac for a little over a year now. Their efforts, along with the Home Buyer Tax Credit have helped bring down long-term interest rates and provide the housing industry with some much-needed price stabilization. In this month’s Power Broker Roundtable, industry leaders Jeff Detweiler and Glenn Melton discuss the likeliness of the Federal Government backing away and what effect their actions will have on the marketplace.
Moderator: Steve Brown, Special Liaison for Large Firm Relations, NAR
Participants: Jeff Detweiler, President and CEO, Long & Foster Real Estate
Glenn Melton, CEO, Real Estate Executives International
Steve Brown: A little over a year ago, in an effort to bring down long-term interest rates and provide some much-needed price stabilization to the housing industry, the Treasury Department and the Federal Reserve Board announced they would each purchase mortgage-backed securities (MBSs) from Fannie Mae and Freddie Mac. The idea was to free up mortgage money, reduce inventory, and bolster the housing recovery that would be key to an economic recovery overall.
With the added stimulus of the Home Buyer Tax Credit, the Treasury and the Federal Reserve Board actions were sound. Mortgage rates did fall to historic lows, unsold inventory did indeed decline, and prices are stabilizing in some regions.
In all, as we stand on the precipice of the spring sales season, the outlook is certainly more favorable, and NAR is doing its part with resources available at: www.REALTOR.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit. These educational and marketing materials are designed to help REALTORS® bring more consumers into the marketplace.
But just how fragile is this housing recovery? How might it be impacted by, for example, an end or a slowdown to the government’s mortgage-backed securities program—or, for that matter, an end to the tax credit? To address this issue, we look to a couple of long-time and insightful industry leaders. Jeff, how likely is it that the Federal Government will back away, and what effect is that likely to have in the marketplace?
Jeff Detweiler: Well, to begin with, Steve, I think everyone agrees that the housing recovery is critical to the economic recovery overall—and keeping Freddie and Fannie fully into mortgage support is one of the few ways the government has available to help prop up that recovery. I believe that’s why the Treasury Department announced in December that it would give Fannie and Freddie unlimited financial support over the next three years.
Glenn Melton: Absolutely. With that announcement, the government sent an unmistakable message that it would stand by the housing industry for the long-haul. I think it’s fair to say the federal government will continue to monitor what’s happening to the strength of the economy. They are not likely to discontinue any program that might slow down a positive momentum.
Jeff Detweiler: Besides, worst case scenario, if Federal purchases of MBSs were to go away, I think interest rates would rise pretty negligibly—to maybe as high as 6%. In the scheme of things, that’s hardly problematic. It’s still a historically low rate, and given today’s housing affordability, it certainly doesn’t pose enough of a hardship to slow down sales—especially if job losses continue to go to neutral and employment begins to rise.
Glenn Melton: Interestingly, in our business, we are already testing the waters in that regard—adding back temporary help to the payroll with an eye toward moving them into full time as things continue to turn around. And you’re right, Jeff. It would take a lot more than a slight bump in interest rates to stop working consumers from buying homes.
Steve Brown: I’m getting the sense that you are far from pessimistic—that you do, in fact, look forward to the coming sales season.
Glenn Melton: Definitely. Most brokers are reporting that their markets are stabilizing—that the market as a whole is getting better. Also, I think lenders are getting closer to finding common ways to handle short sales, and that the trend will be away from REOs in 2010. In all, I think the Fed’s doing all the right things to stimulate activity, and I don’t believe they will pull that support too early.
Jeff Detweiler: One more thing that needs to happen is for credit to ease up and I think with these new guarantees, that is likelier to happen.
Steve Brown: So what do brokers need to be concerned with going forward?
Jeff Detweiler: Brokers need to be on top of all the new RESPA rules. They need to seek out high quality business in new and traditional ways—and they need to strive for that sense of normalcy that comes with a recovering market. As liquidity comes back, even the larger homes will start to move.
Glenn Melton: You’re right. A lot of consumers have been sidelined too long for a variety of reasons, and with every upward tick in the economy, more and more of them will begin to act. I’ll tell you, I’d much rather be selling houses in 2010 than anything else.