New cash infusion in housing spurs hope

Will the Federal Reserve's latest effort to jump-start the housing market work? For the first time since summer, real estate agent Deborah Gould said yesterday, she has good reason to be hopeful.

The Fed pledged Tuesday to purchase $600 billion in mortgage-backed securities - a promise of crucial new liquidity for the market at ground zero of the credit crisis that has gripped the country for months.

Troubled mortgages and mortgage-backed securities, along with unrealistically high housing prices, have been blamed for causing much of the crisis. Now that housing prices have fallen sharply, the central bank is hoping the housing market can breathe new life into the ailing economy.

Although some economists remain wary, initial signs were positive. By yesterday, the average rate for a 30-year mortgage had fallen more than three-quarters of a percentage point, from about 6.38 percent to 5.5 percent, according to Bloomberg News.

More important to Gould, a Bucks County real estate agent for the last seven years, was the swift response of loan brokers. By yesterday afternoon, she had received three e-mails from brokers offering deals to home buyers.

"They're saying, 'Bring us your clients. We will cover some of the closing costs. We'll handle the appraisal fee. No loan application fee.' They're doing everything they can to bring people in," said Gould, an agent for Princeton-based N.T. Callaway L.L.C.

Gould said the combination of reduced mortgage rates and depressed home prices should help spur potential buyers to reenter the market - if they can regain confidence that prices won't keep falling and that the economy is at least on a slow path to recovery.

Gould said her office hoped that some of its recent home sellers, now waiting on the sidelines, would be encouraged to take the plunge. "We probably have a half-dozen or more who are just waiting," she said.

A potential point of confusion is that, while economists say average housing prices are expected to fall further, the price for an individual house on the market may have already taken the hit.

Gus Faucher, director of macroeconomics at Moody's Economy.com, said his firm's models suggested that the housing bubble was still only partly deflated.

Faucher said that, according to the Case-Schiller Index, which tracks repeat sales of the same houses over time, prices for existing homes peaked nationally in the first quarter of 2006.

Since then, the index has fallen about 18 percent, he said. By that measure, a house that sold in 2006 for $220,000 - the national metropolitan-area median for existing single-family homes, according to the National Association of Realtors - would now be worth about $180,000.

"We think that by the time it's done nationally, it's going to fall about 30 percent, so we're a little less than two-thirds of the way there," Faucher said.

Still, he said there was some reason to be hopeful that the Fed's latest action could bear fruit - especially locally, where the price drop has been less steep. He said the prices for Philadelphia and its four Pennsylvania suburban counties had fallen only 4 percent since their 2006 peak.

"We're in much better shape than the rest of the country," he said.

Orawin Velz, associate vice president of economic forecasting for the Mortgage Bankers Association, said a key question was whether the drop in rates would be sustained. She said rates had declined similarly in September after the government rescued Fannie Mae and Freddie Mac, only to rise again within two weeks.

"You have to hope that this decline will last for longer - enough time for people to change their behavior and jump back into the housing market," Velz said. She added, "I think this is likely to be sustained, so hopefully we'll see more housing demand as a result."

Faucher said one question was whether lenders, spooked by defaults and wary of falling asset values, would continue to keep a lid on lending even with the added liquidity.

"People who are pristine credit risks are getting loans, but they're the only ones who are," Faucher said.

To Gould, the Bucks real estate agent, evidence is already mounting that lenders are back in the game - again willing to offer mortgages even to borrowers with less-than-perfect credit, if only after closer examination.

Gould said she recently had closed one such purchase, in which a buyer with a credit score "in the low 600s" and a down payment of less than 5 percent got a mortgage from a national bank. She said the interest rate for the subprime loan was less than 7 percent.

It may have helped that the price for the Solebury home had already come down several times, to 25 percent below its initial listing.

"We had to go through a few more hoops, understandably," Gould said, "but money is still out there. People are still granting loans."