With yesterday’s announcement that the government would be taking over both Fannie Mae and Freddie Mac, pundits and television talking heads began asking if the move signaled a bottom for both the housing market as well as the stock market.
Well, the market today responded with a resounding ‘NO’ and fell by almost the exact amount by which it rose yesterday.
The government’s move yesterday did have the effect of immediately dropping most mortgage rates by around 50 basis points. The problem, as I was discussing yesterady with two friends who are mortgage brokers, is that unless lenders are willing to again start lending, the interest rate on loans is largely irrelevant.
Any time there is a bubble in the market, in this case the exceedingly easy access to financing we’ve seen the past few years, and that bubble bursts, the pendulum usually overreacts in the opposite direction. Qualified borrowers, with high credit scores, low loan to value and adequate cash reserves are still finding it incredibly challenging to get real estate financing. Not until LENDERS feel that the real estate market has stabilized will they begin to loosen up their underwriting a little allowing the credit markets to return to some modicum of normalcy.
I hope and wish that those pundits from yesterday were right and that we are forming a bottom in the market as it would be nice to be able to give friends, family and clients some good news for a change, but I’m not holding my breath.