Bill Sims Real Estate Insider's Newsletter

March-April 2010

My last couple of newsletters have been downright depressing if you are involved in the real estate industry or have a home to sell, but now I have some good news: there are 1,115 homes currently on the market in West St. Tammany Parish, and 202 of them are "Under Contract". Assuming 75% of these contracts make it to Act of Sale within a month, there will be 151 homes selling. That converts into a market inventory of 7.4 months...a HUGE improvement over the past month's supply of 17.4 months!

Perhaps at last buyers are trying to buy before the tax credits expire, and before Fannie Mae and Freddie Mac quit propping up the mortgage market on March 31st.

Do NOT take comfort in pronouncements by Federal Reserve Chairman Ben Bernanke that the Fed is going to keep interest rates low while the economy tries to recover...I have a degree in Economics, and it is Macroeconomics 101 that there is not a connection between the Federal Reserve Discount Rate and mortgage rates...The Fed Rate is very short-term (term measured in days) compared to a fixed rate mortgage being measured in years. Mortgage rates are determined by supply and demand...supply of mortgage backed securities compared to demand by investors. Alternative investments such as 10 Year Treasury Bills compete with mortgages for investors, and investors of course go for the best balance of yield compared to risk. And the Fed has run out of funds to prop up Fannie Mae and Freddie Mac.

For the past couple of years investors have felt that mortgage backed securities are not worth the risk at current yields, so the Federal Reserve has artificially propped up the market by buying $1.25 trillion of mortgage securities from Fannie Mae and Freddie Mac, along with $175 billion of debt.

When this ends on March 31st I expect interest rates to increase by .5 to 1.5% from the currently very low levels around 5%.

Sincerely,

William "Bill" Sims