Economic and Mortgage Market Summary (Feb)

FannieMae came out with the economic summary for February 2008 and the key points are listed below.

FannieMae (February 2008) Economic and Mortgage Market Developments

• Inflation. The core rate of inflation increased further in December and remains above the top of the Federal
Reserve’s implicit target range. The slowdown in GDP growth and resulting slack in the labor market should
help alleviate some pressure on core inflation (especially as monetary policy has become accommodative).
However, there is continued pressure on core inflation from the pass-through of recent energy price increases.

• Interest rates. The Federal Reserve lowered the federal funds rate by 125 basis points in January, and continued
credit tightness and softening economic conditions should allow them to lower it more this year. We expect the
Fed to cut rates by 50 bps in March, and by an additional 50 bps over the next several meetings, bringing the
federal funds rate down to 2.00 percent. Nevertheless, long-term rates should edge up from current levels over
the year.

• Housing market. We project that the combination of below-trend economic growth and continued dislocations in
the mortgage market will continue to slow housing starts and sales this year. We expect total home sales to
decline by 22 percent in 2008 and single-family housing starts to fall by 30 percent in 2008. We expect housing
starts and sales to stabilize in the middle of this year, with sustained gains beginning in 2009. However, the large
number of unsold homes on the market is putting downward pressure on house prices. This price weakness is
likely to extend at least through 2009.

Molly R. Boesel and David Kogut
Economics and Mortgage Market Analysis
February 15, 2008

In other words…

~Inflation is increasing and the fed is working to slow it. They still don’t have control over it and the way things look; the market will be unstable until the housing market volatility slows down.

~As for interest rates, the Fed continues to cut rates but long term rates (30yr and 40yr) will continue to climb through the course of the rest of the year.

~The housing market will continue to decline throughout 2008, is expected to stabilize in mid 09’ and the increase in inventory is only increasing the the weakness in the housing market.

Regardless of the news, the bottom line is that everyone is waiting to see what the rest of everyone else is going to do. People are paralyzied by the market and don’t want make a bad move. Make no mistake, now is the best time to buy a home in the last 10+ years. Money is incredibly cheap with rates being so low, and the inventory and standard concessions that sellers are making across the market, make this the epitome of a buyers market.

Those that buy or refi at this point are wise and will reap the benefits of this favorable market. Those who chase the rainbow and keep searching for the “Bottom” of the market, or for the rates to go down- will find that it doesn’t exist because they will always feel that there is always something better and when the market actually begins to flourish the inventory will be compromised and according to the fed and the inflation issues, rates will have gone up. Another thing to keep in mind is that on a $250,000 investment, an increse in rates of .5% will decrease their buying power by about $30K


Final Thought…

There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.

-John Fitzgerald Kennedy