John Burns Says There's Hope

The U.S. government now controls the U.S. mortgage industry, which means two very favorable things for home builders, according to real estate analyst John Burns.

The near-term future of mortgage liquidity will be set by policy rather than economics. In an election year, that can only be positive for housing.

The mortgage-backed securities market will now officially have the full faith and credit of the U.S. government behind it, resulting in very low interest rates that may morph into very small spreads over Treasuries.

While taxpayers should revolt and throw every Congressman out of office who took a check from Freddie and Fannie's lobbyists, the bottom line is that our government has come to the rescue. We will be monitoring the government policies closely to determine if a turnaround is on the horizon, Burns says. While the events of last week are positive, the looming recession makes it premature to call a turnaround, especially in regards to home prices.

The government action on September 7th sent mortgage rates tumbling, with 30-year fixed rates dropping more than 40 basis points from the previous week, and restored some confidence to investors. The graph below shows the high correlation between low mortgage rates and strong sales activity.