The real estate blog.

Despite greater pressure from the economic community and current economic trends, the Fed continued to hold short term interest rates at their current level, 5.25%.

The Fed is really in a tight spot right now because so much market movement is simply tied to speculation of what the Fed will do in the future. If the Fed begins to lower rates, that is an admission the economy is doing poorly and could spark huge stock sell-offs and further tightening of credit.

On the other hand, raising rates would signify inflation is a bigger concern than the struggling housing market and would also decrease the amount of buyers who could qualify for a home. Either move could set off an economic snowball that would be bad for everyone.

Right now the safe move and smart move

is to do nothing at all. Financial analysts don’t just speculate on the action taken by the FOMC, they place a lot of stock in the accompanying statement. Yesterday’s statement really hit the spot for the markets. Prior Fed chairman Alan Greenspan was famous for drafting such cryptic statements, it was difficult to anticipate future Fed moves.

The August statement acknowledged market volatility and tightening credit standards, but clearly stated more information was needed before making a policy change.

the Fed noted that “financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing.”

The Fed also said that “although the downside risks to growth have increased somewhat, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.”

The Fed also indicated that it expects the economy “to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.”

How does all this theory compare to what’s happening in real life? A new report shows mortgage application activity for both purchases and refinances has picked up for the first time in almost a month. While credit requirements are slightly stricter than last year, mortgage rates are lower.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Aug. 3 increased 8.1 percent to 656.5, its highest level since early June.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 1.2 percent to 626.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.41 percent, down 0.09 percentage point from the previous week. Interest rates were below year-ago levels at 6.45 percent.

What we’re seeing here now are mortgage rates and home prices that are highly favorable to borrowers with good credit and money for a down payment. Further, those borrowers with excellent credit can continue to purchase with no money down if they wish to. Mortgage rates are now at a lower level than they were when only bubble bloggers had their sights on a housing downturn.

Do conditions still represent a collapse in the housing sector? I believe that as long as certain economic factors remain the same, namely job availability and rising incomes, a crash is not in the horizon. However, I am open minded enough to realize these conditions can change.