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Thursday, May 15, 2008

Signs of better times ahead?

From one of my real estate news sources comes some good news in a recent report. Despite all the grim news about gas prices and recession, there are more than a few encouraging signs popping up in the national economy that aren't getting a lot of attention. Worker productivity in the U.S., for example, jumped by 2.2 percent in the latest quarter -- and that was on top of a 1.8 percent gain the quarter before.

Why's that significant for housing and real estate? Because rising productivity generally points to lower inflation … and lower inflation fears help keep interest rates low. Lower inflation also means that the Fed can keep the discount rate low to encourage more lending. We continue to see mortgage rates hovering near record lows. Thirty year fixed rate loans dropped again last week -- the second week in a row -- and went under the six percent mark to 5.9 percent, according to the Mortgage Bankers Association of America. Fifteen year rates slid to 5.5 percent.

Equally important, the number of consumers applying for mortgages to purchase homes took a healthy jump last week -- up 12.1 percent, according to the Mortgage Bankers. Applications for FHA mortgages -- the hottest product in the home purchase space right now -- were up by 13.2 percent. This “spring surge” in loan applications is important because it points to potentially higher home sales in the months ahead. Lower home prices in major markets, plus the arrival of the long-awaited FHA "jumbo" loans in high cost areas, are definitely pushing applications. FHA mortgages now make up the majority of mortgage in this area.

But despite these positive signs for the housing economy, there are some troubling developments as well. Toughened underwriting restrictions that began a year ago with the sub-prime loans mess have now "spilled over into the overall mortgage market including prime," according to the Fed survey. 62 percent of all banks reported imposing more restrictive loan standards during the first quarter of this year compared with last year. Until they start loosening up, it will be tough to move to a full real estate recovery. If people can’t get mortgages they can’t buy houses.

So, is this all just grasping at straws in hopes of finding some good news to report in the midst of the current recession? Perhaps, or perhaps we are starting to see signs of the economy beginning to deal with the issues that put us in this slump and finding a way out. I certainly hope so.

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