We still have the same problem we have had for a long time; the real estate market is falling because there are so many foreclosures. We were hoping low mortgage rates would cure this problem. However, the mortgage rates are now rising again. The yield on the long bonds is rising. The 10 year note yield was 3.19% a month ago. It is 3.77% now. Other bonds have moved similarly. The mortgage rates have moved in virtual lockstep. The 30 yr fixed rate was down to 4.85% in April. Now it is at about 5.5% (last week 5.7%). The trend has definitely been upward lately. This does not help the real estate market. The supply of houses on the market temporarily went down, but this is likely only temporary. Plus the supply actually needs to go down much much more.
If the government does not find some way to stabilize the real estate market, the banks will need another bailout. The economy will fall further into the pit. Already the commercial paper market has been contracting dramatically again. Are we about to have another credit seizure as we did last fall? Perhaps we are!
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