My Mortgage Blog

The Fed’s latest Quantitative Easing Program—commonly known as QE3—has been percolating for a few months now. What has it produced? According to Keith Gumbinger of HSH Associates, “the effort so far has resulted in little more than an eighth-percentage point decline in rates.”

With mortgage rates about an eighth of a percent below where they would otherwise be, how is the real estate market doing? These are not hard and fast figures, so this is harder to gauge, but there are reasons to believe that the strength in the real estate market is out of proportion to—bigger than—the apparent benefits to mortgage rates provided by QE3.

Notice that the Fed, in its Open Market Committee meeting last week, seems to have made no changes to the QE3 program. The announced intent at the outside of the program was to keep it in force until we had an adequate number of reliable indicators that it had done its work…and the most acceptable of those numbers will be improvements to the number of jobs being created and a credible decline in the unemployment rate.

A few economists have ventured the idea that QE3 will be with us for about two years, at which point the need for fiscal stimulus is beaten back by the economic growth that has become very visible by then.

This is in line with (as one example of a favorable view of the future) the annual UCLA/Anderson forecast which foresees continued slow growth in the real estate sector over the next six months, then expects it to pick up with perhaps surprising strength. Jonathan Lansner reported in a post in the Orange County Register, looking at the UCLA predictions for growth in construction, that “next year, homebuilding would grow 44 percent and in 2014 jump by an additional 78 percent…highest since 2007.” The construction of residential housing units, in other words, could more than double in the next two years.

Thus, we can—tentatively—look for solid economic improvements in general, and further strengthening of the real estate market in particular, over the longer term, though we seem to have to wade through the swamp of slow and uncertain improvement for the immediate future.

Still, there is another gift here. UCLA/Anderson anticipates that mortgage rates won’t reach much higher than 4% in the coming year and 4.5% in the year that follows. The continuing record lows for mortgage rates will be a major factor, not all that dependent on QE3, as the real estate market grows firmer.

This means that a homeowner who has been waiting in vain for his or her home to regain the value that was lost in the past couple of years might consider an alternative. In many of the nation’s stronger real estate markets, home values are expected to keep rising, even as interest rates remain low. This means that someone who sells in today’s market—in which it has become easier to sell—and then buyers at today’s prices could enjoy the benefits of a growing appreciation rate in the early years of homeownership.

We’re not talking about a real estate boom here, though many students of the new construction suggest that the demand for new houses is such and the number of units being built is still so low that we could be seeing the start of a home construction “boomlet”. We are talking, therefore, about significant improvements to the real estate market and about a New Homes sector that may grow to become a major player in the near term future of real estate.

I feel, oddly, as if I’ve made such predictions before—and not that long ago. It’s a creepy feeling. This market and this economy have created slippery slopes for positive predictions. But this feels—and looks—right.