The Housing Chronicles Blog: Bailout still not guaranteed to fix housing market

Tuesday, September 23, 2008

Bailout still not guaranteed to fix housing market

Whether the amount if $700 billion or $1.4 trillion, the bailout being proposed by the Bush Administration may fix Wall Street but not Main Street -- at least not the real estate sector. While that may be partly due to housing prices that are still unaffordable by historical measures, it's also due to the lack of credit which made the boom possible. From an AP story via MSNBC:

Despite the Bush administration's historic and head-spinning $700 billion rescue of the financial industry, it will do little to ease lending standards so more homebuyers can qualify for loans, nor has it had much affect on mortgage interest rates so far.

By purchasing mortgages en masse from banks and other lenders, the U.S. Treasury will have more power to stop the cascade of foreclosures and help more Americans keep their homes, which will act as a brake on falling prices.

The question is, how fast can they act? More than 4 million homeowners were already at least one month behind on their loans at the end of June, and almost 500,000 homeowners had started the foreclosure process, according to the Mortgage Bankers Association...

...on Friday the average rate on a 30-year, fixed rate mortgage rose to 6.11 percent, up from 6.07 percent a day earlier, according to financial publisher HSH Associates. The average rate had fallen as low as 5.87 percent on Tuesday, but investors are clearly still jittery.