Monday, March 24, 2008

Weekly Economic Recap

The Federal Reserve's goal last week was to lube the credit-markets' sticky gears. Mission accomplished. First, the Fed buckled and agreed to serve as guarantor of last resort for Bear Stearns – a once mighty Wall Street investment house – and its rapidly depreciating portfolio of mortgage-backed securities (MBS). In turn, the guarantee prompted another Wall Street firm, JP Morgan, to buy Bear for little more than a song and a quick two-step dance.

The Fed then applied more gear-lubing grease with a 75-basis point cut in the fed funds rate. "The outlook...has weakened further," the Fed said in an accompanying statement. "Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth."

The cut in the Fed funds rate was actually less than what many pundits wanted, but salubrious nonetheless: Stocks soared and the credit-market gained much-needed traction. Fixed-rate mortgages improved dramatically across the nation. The benchmark 30-year fixed-rate mortgage dropped 41 basis points, to average 5.98%, while the 15-year fixed-rate mortgage fell 39 basis points, to average 5.46%, according to Bankrate's survey of large mortgage lenders.

Even homebuilders managed to maintain a stiff upper lip. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index for March remained at 20, still two points above the historic low of 18 reached in December. It wasn't the greatest news, but at least it suggests that things aren't getting worse.

Eric P. Egeland
RE/MAX Advanced

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