Mortgage rates are done falling, Freddie chief says
But John Koskinen, the interim CEO of Freddie Mac, says that the party could be coming to an end. Reuters reports that Koskinen remarked after a meeting with President Obama that any further declines in interest rates will likely be incremental, meaning that people waiting to buy or refinance in the hope of getting better loan terms are likely to be out of luck.
Here's the problem with all this: Right now interest rates are at record lows and Congress is giving an $8,000 tax credit to first-time home buyers. That's giving the housing market somewhat of a jolt, but what happens when interest rates start to tick back up and the tax credit expires on December 1 of this year? If both of those things happen at the same time, housing could be in for a real doozie.
What first-time homebuyer in their right mind will make an offer on a house on December 2? Making the credit permanent would be prohibitively expensive, but letting it expire could be a crushing blow to an already fragile market.
In trying to rescue the housing market, the federal government has thrown everything it has at the problem, but it's quickly running out of ammunition. It could also be building another "mini-bubble" with all these unsustainable incentives designed to bring buyers off the sidelines.