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The real estate industry gets a favor from Bernanke

Today's Financial News - Posted December 3, 2008

The real estate industry just posted its strongest week in years. It is all thanks to the Federal Reserve and its latest stimulus program. Now is the time to buy real estate. Interest rates have not been this low for a long time.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Well look at that. Government intervention is actually helping in a way our lawmakers intended. While not all of the Fed’s programs have been a success, the one it created last week is working to get the nation’s economy back on track.

You may recall the Federal Reserve announced last week that it planned to purchase up to $500 billion worth of mortgage-backed securities from government-sponsored agencies like Fannie Mae and Freddie Mac. Its goal was to grease the rusty gears of the real estate industry and force mortgage rates lower.

The plan worked.

The Mortgage Bankers Association announced this morning that last week’s mortgage application rate skyrocketed a record 112%. With the gauge at 857, applications last week were at their highest levels since late March.

Of course, buyers were not gobbling up homes during the Thanksgiving week because Fannie and Freddie were getting a break. They were applying for mortgages because interest rates are at their lowest rates since 2005. Buyers are getting a fantastic deal.

The boosters are ignited

A week or so ago, a 30-year fixed mortgage came with a rate of close to 6.5%. Today, perspective buyers can lock in a rate with Wells Fargo (NYSE:WFC) of just 5.375%. That is enough to pull monthly mortgage payments down by several hundred dollars each month.

With rates this low and homes this cheap, buyers are finally realizing the opportunity they have on their hands. Out of all of the deals the Fed has created over the past three months, this one has the most potential of directly helping the American people.

But what about you as an investor? Well, the news is even better. The real estate industry has traditionally been a leading indicator. In other words, it rises ahead of the financial markets. An increase in home purchases and therefore home values, is a surefire indication that the equities market will be making similar moves in the near future.

There are some great investment opportunities out there.  But for now, stay away from traditional real estate plays like REITs and the nation’s large homebuilders. The deleveraging tsunami is still pulling these sectors under and there will likely to be more pain in the near future.

If you want to make conservative investments with larger-than-usual profit potential, stick with the big guys. Blue Chips are a great investment as the nation gets back on track. Companies like General Electric (NYSE:GE) and Altria (NSYE:MO) with their strong dividends and proven history of healthy revenue growth are worth your money.

The Federal Reserve is making positive moves, the real estate market is on the rebound and moneymaking opportunities are all over the place. If you are not going to buy a house or two at these great prices, at least invest in a few discounted stocks.


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Posted by Andrew Snyder · Filed Under Real Estate 

Comments

One Response to “The real estate industry gets a favor from Bernanke”

  • Owings Mills Real Estate Says:
    December 12th, 2008 at 1:38 am

    It is working, indeed, though there is an interesting side effect to the rumors that interest rates may be “forced” down to 4.5% (courtesy of the Treasury buying mortgage-backed securities), i.e. - some folks who were going to refinance are now deciding to sit and wait for those great rates (that may or may not come to fruition). Some folks who were serious about buying a house are also considering waiting for those rates. Something of a double-edged sword.

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