Last Thursday held two mortgage-market unfriendly items that are worthy of note: Fed Chairman Ben Bernanke stated that the Fed was inching closer to an inclination to raise short-term interest rates and America held a poorly bid 30 year bond auction.  Mortgage rates suffered and increased as a result.

That’s the bad news.  The good news is that even with that big whack to rates, we’re still hanging out just at or below 5% on an FHA insured 30 year fixed loan.  Boo-yah.

This is Greg talking now (as opposed to any sort of hard factual source), but I can’t see things getting too much rosier on the interest rate front.  The government effort to keep rates down is expiring on Halloween (what a creepy choice of days to end on) and the big fat $8000 1st time homebuyer’s tax credit is expiring at the end of November. 

Do I think those two programs’ deaths will herald the end of “the good days” in buying real estate?  Hardly.  But it will make things a tad less attractive.  The fact of the matter is that we still have some serious housing market work to do from a governmental perspective.  A record 1 in 3 home loans in America is bigger than the house value it is collateralized by.  26 banking institutions in this country have more than 20% of the loans on their books 90 days or more in default.  And the numbers aren’t improving; they’re progressively worsening.  This implies to me that SOMETHING will be done in the genre of housing stimulation SOMETIME in the future.  What, when, and how much are the big variables in the equation.

The reason I think we’ve seen the bottom in interest rates is three-fold.  Number one: stocks globally are doing pretty darn good.  Whether there is justification behind it or not, improving stock values makes bonds look weak by comparison.  So, less money going to buy bonds = bond rates have to come up to attract more buyers = mortgages backing those bonds must increase their rates in tandem.  Num­ber two: we’ve borrowed a pile of cash already, and the more we borrow, the shakier the investment seems to the investors (China… and other people I’m sure) and the greater the political pressure to stop.  Hence, rates come up to overcome their increased sense of risk.  Number three: the Health Care debate.  Distracting attention from a problem like housing will mean less political inclination to fix it.

So, is a return to a pure laissez-faire let-the-market-do-what-it’s-gonna-do necessarily a bad thing?  Nope.  And I only say that because we’ve already come so far down and have purged so much from the system.  It does mean that, if you have the means, there isn’t a whole lot of incentive for waiting until 2010 to buy a house.