The S & P Case/Schiller Home Price Index dropped by 9.1 percent at the end of 2007, which represents the largest drop in the index’s 20 year history. The index measures home prices in 20 key market areas throughout the US. Decreasing home prices can make it difficult, if not impossible, to sell a home or refinance home mortgage loans.

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A mixed bag of mortgage and housing news:

• Thirty-year mortgage rates popped back above 6% for the first time since the start of the year
• Home sales recorded their slowest month since 1999
• The dollar sunk to a new low against the Euro

Clearly, the first item is bad news for home buyers, while the second is good news. It is the third item, however, that ought to be a reminder for home buyers to have a sense of urgency about finding a property.

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Mortgage applications dropped for the 3rd consecutive week according to the Mortgage Bankers Association’s weekly survey of applications. Mortgage applications dropped by 19.2% during the week ending February 22. Refinance applications declined by 30%, which appears to highlight the difficulties homeowners are experiencing due to falling home prices and tighter mortgage lending standards.

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The National Association of Realtors (NAR) reports that the median price of a single family home has fallen to $198,700. Real estate professionals estimate that there is approximately a 10 month supply of homes on the market. Lower home prices and a glut of available homes suggest a buyer’s market in many areas. This can provide homebuyers with more negotiating power.

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To take a step back from week-to-week news for a moment before moving on to recent developments, a little historical perspective reveals just how low mortgage rates are these days. For a month-and-a-half now, thirty-year mortgage rates have been below 6.0%. How low is that? In thirty-six years of mortgage data, there have only been three years in which mortgage rates averaged below 6.0%. In none of those three years, did those rates stay below 6.0% for the entire year.

In other words, history is clear on two things:

• Current mortgage rates are low
• Low mortgage rates don’t stay around for long

This history lesson gives added power to some recent developments:

• Oil prices recently closed above $100 a barrel for the first time
• January continued 2007’s trend toward higher inflation, with a 0.4% monthly increase in the Consumer Price Index (CPI)
• Long bonds and short-term interest rates are going their separate ways, with yields on long bonds rising over the past month

It all adds up to reinforce the importance of taking advantage of low interest rates as soon as they become available.

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Mortgage news this week was dominated by the announcement of Project Lifeline, a program to help mortgage borrowers who are on the brink of foreclosure.

To appreciate the context of Project Lifeline, it is important to also consider two other stories from this past week:

• Figures from the first four months of this fiscal year show that the U.S. Government budget deficit is running at about twice the pace of last year’s
• Morgan Stanley became the latest in a series of financial firms to bite the bullet because of the mortgage crisis, with the announcement that they would lay off 1,000 mortgage workers

Considering the circumstances, Project Lifeline might be the most pragmatic type of solution available.

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It was a mixed week for mortgage news. Here were some items of interest:

• Mortgage rates rose in the last week of January, breaking a streak of four straight weeks in which those rates declined.
• Mortgage application activity was a mixed bag. New purchase applications increased, but refinancing applications — which had been running hot and heavy — slowed down.
• A Federal Reserve survey reported that 55% of U.S. banks had tightened their mortgage lending standards.
• The service sector of the economy contracted sharply in January, heightening fears that the economy may already have slipped into a recession.
• Oil prices, which were tickling the $100 mark not too long ago, fell below $90 a barrel.

It’s these last two items which may turn out to be the best news of all for mortgage shoppers.

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