Mortgage loan rates will continue to stay low, and home and condo prices will continue to rise, as long as financial institutions can sell their mortgage-backed securities to foreign investors. It’s that simple.
By Ruth Simon, James R Hagerty & James T Areddy, Wall Street Journal
Strong demand for mortgage-backed securities from investors world-wide is allowing American lenders to make more loans — and riskier ones — in a way that is helping prolong the boom in U.S. house prices.
The cash pouring in — not only from U.S. investors but increasingly from Europe and Asia — keeps stoking the housing market even as the Federal Reserve Board continues to raise interest rates, normally something that damps home prices. The market has shown a few signs of slowing recently, and talk of a bubble has grown louder, but prices continue to rise or remain at lofty levels as investors continue to gobble up mortgage-backed securities and banks keep lending.
"As the Fed has tightened, lenders have eased" terms for borrowers, says Mark Zandi, chief economist at Economy.com, a forecasting firm in West Chester, Pa.
Investment banks and other firms have been buying mortgage loans from lenders and packaging them into securities for sale to investors since the 1980s. But investor demand has surged in recent years, largely because in an era of low returns, mortgage-backed securities offer yield-starved investors much higher returns than government bonds.
Complete article: Housing-Bubble Talk Doesn’t Scare Foreigners