Bendix Anderson

Interest rates keep breaking records, dropping lower and lower, week after week.

Fear of deflation and a double-dip recession pushed the average interest rate for a 30-year, fixed-rate home loan down to 4.42 percent, with an average origination fee of 0.7 percent. That's the lowest average rate since Freddie Mac began keeping track in 1971, according to Freddie Mac's latest Primary Mortgage Market Survey. This is the ninth week in a row the survey has set a new, historic low.

Impossibly low interest rates seem to have become the new normal -- just like high unemployment. And because of economic forces including new recession fears, federal actions, and the stagnating economy, they're likely to stay very, very low for the next year, according Frank Northaft, chief economist for Freddie Mac.

Pundits warn of a new housing crash after a tiny number of people signed contracts to buy homes in June, according to the Pending Home Sales Index kept by the National Association of Realtors.

The seasonally-adjusted Index sank to 75.7 in June. That's down slightly from May, and down steeply from April and March, when buyers rushed to take advantage of the federal homebuyer tax credit.

"Hell has broken loose all over again in real estate. Don't buy a home. Sell one," said commentator Michael David White at HousingStory.net.

However, if you look closely at the numbers, the Pending Home Sales report seems less like a sign of impending doom and more like all the other economic headlines you've been reading, pointing to continued weakness and a wimpy recovery.

The federal government says foreclosure prevention has helped millions of people. But sometimes it seems hard to find a pundit or news story that mentions foreclosure prevention program without using the word "failed," often in the headline.

Whom should you believe?

Government officials say 2.8 million homeowners at risk of foreclosure have had their home mortgages modified, lowering monthly payment by an average of about $500 since April 2009. But critics point out that not all of those modifications have lasted.

For example, of the 1.2 million trial modification started so far through the Home Affordable Modification Program (HAMP), about a third, or 429,696, have been canceled, according to the latest reports. Many skeptics worry that foreclosure prevention has merely delayed foreclosure for millions of homeowners who are still likely to eventually lose their homes.

Interest rates for home loans are the lowest on record, despite months of predictions that they would rise. That's great news for the housing market.

To whom do we owe thanks? Take a look in the mirror.

American investors, from individuals to institutions, are helping to push down interest rates by buying up bonds, starting with U.S. Treasury bonds. Mortgage interest rates tend to follow the yield on Treasury bonds very closely, and U.S. investors are now the second largest group of investors in Treasuries, pushing the price up and the yield on the bonds down.

The large stake that Americans own in our own national debt may help calm fears that a decision made by investors in some faraway country -- such as a change in Chinese monetary policy -- could hurt American borrowing power.

We had a few months of good news for the housing markets, as homebuyers rushed to take advantage of the $8,000 federal homebuyer tax credit. But leading indicators for the housing market -- from the number of mortgage applications, to housing start, to builder confidence -- have tanked since the homebuyer tax credit hit its deadline April 30.

It's like the hangover after a wild party, leading to the usual question: Was it worth it?

It's the end of an era: Mortgage giants Fannie Mae and Freddie Mac no longer will be traded on the New York Stock Exchange. The Federal Housing Finance Agency made the request. From now on, both government-controlled companies will be traded only on the much-smaller Over-the-Counter Bulletin Board.

But will borrowers affected by the change?

Wall Street insiders call it delisting. It's what happens to companies whose worth, in terms of their stock price, has collapsed with little hope of ever recovering. It's another way of saying a company is just about dead. The FHFA claims this is not the case in this instance.

Indeed, Fannie and Freddie may be dead to the New York Stock Exchange, but they are very much alive in the home loan business -- the vast majority all new home loans now receive a guarantee from Fannie or Freddie that pushes down the mortgage interest rate. So Fannie Mae and Freddie Mac are dead -- long live Fannie Mae and Freddie Mac.

What's really going on?

Foreclosures dropped again in May -- the second month in a row that the number of foreclosure actions fell, according to research company RealtyTrac.

The news will make for some positive headlines -- but we've seen fluctuations like this before. The rate of foreclosure is still absurdly high.

The genuine good news is buried a little deeper in the RealtyTrac report. Banks are cutting far into the backlog of properties in the foreclosure process, while fewer new properties are getting into trouble as the job market begins to stabilize.

"Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed," said James J. Saccacio, chief executive officer of RealtyTrac. "Overall foreclosure activity [is] leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months."

The question is whether this lull is an early sign of upward momentum in the housing market or rather a quick torpor before another round of recessionary catastrophe.

Yesterday a provocative headline about the housing market appeared online: "Many March, April Pending Home Sales May Never Close."

That's terrible news, or is it?

The trouble is that the economist quoted in the story is wrong. He makes a basic, quite understandable goof about the date of a deadline and then appears to base his entire dire prediction on that mistake.

The interesting thing about this story is that it may show how the bias among economists and journalists has shifted: It's now relatively easy to get published if you say something depressing about housing, even if you're wrong.

What is the reason for this bias?

Maybe you've considered refinancing your mortgage with a loan from a smaller bank. Well the next time you go to visit, the sign on the bank window may say "closed." That's because many small and regional banks are under serious pressure from the growing troubles in commercial real estate.

Three more banks failed this week alone: TierOne Bank of Lincoln, Neb.; Arcola Homestead Savings Bank of Arcola, Ill.; and First National Bank of Rosedale, Miss. So far, close to 200 banks have gone under since the start of the financial crisis, nearly all of them smaller "community" banks, according to a list kept by the Federal Deposit Insurance Corp.

More than 700 more banks are on the FDIC's confidential "Troubled Bank" list, according to The Associated Press. That's close to one in 10 insured depository institutions, up from fewer than 50 troubled banks just a few years ago.

What's going on? Blame the commercial real estate market.

Home prices are likely to rise. Maybe not today, maybe not tomorrow, but soon and, on average, for the rest of our lives, according to one reading of a common sense report from the Citizens Housing Planning Council (CHPC).

Is this news? For a lot of people, the answer is yes.

The report reminds us of an old rule of thumb in real estate, one that seems to have been forgotten in the real estate boom -- and the bust that followed.

For several decades, between the end of World War II and the start of the most recent housing boom, home prices increased slightly faster than inflation, at an average rate of about 5 percent a year. So by historic standards, it's acceptable to call 5 percent a "normal" rate of home price appreciation, according to the economists at Freddie Mac.

Home prices grew much faster during the housing bubble and collapsed during the housing crash. But once the boom and crash are finally behind us, it's possible to imagine prices returning to their "normal" range.

Maybe you had an open house last weekend and nobody came. You weren't alone. The number of people buying homes fell steeply in May, according to one of the first reports to describe home buying activity for the month, an index of mortgages applications to buy homes.

The Purchase Index for May from the Mortgage Bankers Association, hit its lowest level in more than a year. This marks a huge turnaround from earlier this spring, when demand for housing went through a mini-boom ignited by the expanded $8,000 homebuyer tax credit.

That mini-housing boom is over now, and we're just beginning to see how deep the mini-housing crash that follows is likely to be.

Interest rates dropped again last week as economists argued about the financial crisis in Europe and how bad it might get. As HousingWatch reported, Greece and Portugal's bad news could be the American homebuyers' gain.

But how does such faraway news directly affect the U.S.?

Average interest rates for 30-year, fixed-rate home loans flew to 4.78 percent for the week ending May 27, according to the Freddie Mac Primary Mortgage Market Survey.

Since December, writers like me have said over and over again that interest rates would rise. But here we are half-a-year later and interest rates are barely higher than the record 4.71 percent interest rate recorded last December - the lowest average interest rate recorded by Freddie Mac since it started keeping track in 1971.

What's going on?

There's more pain ahead for the housing markets, according to a recent report from Morgan Stanley.

How likely is this nightmare, and what can you do with this information?

"We see potential for another 5-10% decline in nominal prices over the next year," said the authors of "U.S. Housing Strategy: The Long Road Home," an analysis out this month from Morgan Stanley.

Even after home prices hit bottom, Morgan Stanley's experts think home prices will stay low "for another three to four years, during which annual appreciation may reach only as high as inflation or income growth."

Only a few economists still expect a big drop to home prices this year, though most expect prices to sag.

Are you considering applying for help from a foreclosure prevention program? Here's some good news. Recent changes to the largest foreclosure prevention program, the federal Home Affordable Modification Program (HAMP), should help the program work much more smoothly.

Over the last year, the press about HAMP has been overwhelmingly negative. Recent stories like this one in the Wall Street Journal point out that one-in-every-four borrowers who entered the program with trial modifications to their home loans have since been thrown out of the program.

Hundreds of thousands more borrowers have waited with trial modifications that went for six months or even longer, often racking up heavy fines and fees in the process according to the story, even though the trial period is only supposed to last three months.

Why were so many people kicked out? And how can the program be made to work?

The headlines are full of the great news about new home sales. And some of them are warranted.

New sales of single-family houses soared 14.8 percent to a seasonally adjusted annual rate of 504,000 units. The April gain followed a 29.8 percent surge in March, the biggest monthly increase in 47 years, according to the Commerce Dept.

This is good news -- but not for the reason you might think.