Lukewarm Hopes for Housing Recovery in 2012

Earlier this month Freddie Mac released the results of its Primary Mortgage Market Survey revealing that interest rates are still at historic lows. 

Frank Nothaft, Vice President and Freddie Mac’s Chief Economist, reiterated the results of the findings, “Mortgage rates were little changed this past week," with the average 30-year fixed-rate mortgage at or below 4% for the fifth consecutive week. 

This week the Federal Reserve released its latest Beige Book review of regional economic conditions, noting that the residential real estate market generally remained sluggish through the first half of the fourth quarter but that the economy expanded at a moderate pace in 11 of its 12 Districts. "The extraordinarily low mortgage rates of the past month may provide a needed spur to housing activity.”

The housing market may have been taken off life support and is showing some viable sputtering of recovery but we are not out of the woods yet. We should be cautiously optimistic as the upcoming political events could disrupt the process. The current administration has lobbed several only marginally successful salvos at the problem and continues to proceed at a glacial pace, showing no progress in response to the results gathered from the GSE’s bulk REO solution RFI. 

The impending 2012 election could yield more of the same if a Democrat is elected.  While the Republican agenda favors an opening of the floodgates and acceleration to clear the market… say good-bye to any stabilized home value appreciation.

To add to the drama, the infusions of capital to the GSEs may come to a screeching halt as the Treasury Support Agreement ends at the end of 2012. 

Chances are Armageddon will be avoided and the agreement will be renewed as Fannie and Freddie now hold the lion’s share of mortgages.  However the FHA may need a capital infusion to meet its minimum capital guidelines, a problem that could be easily exacerbated if housing prices decline further and the unemployment picture does not improve. 

For the time being we will continue to have a housing market supported by the government sector.  Our hopes are many for the New Year, but in particular we wish for more bipartisan decisions from our lawmakers, thereby laying the foundation for viable private sector solutions, and a true housing market recovery to evolve.

Diane Gozza is the executive vice president of business development of Integrated Mortgage Solutions, Houston TX.