Continuing declines in mortgage rates -- down to the lowest levels we've seen in nearly two years -- should be brightening the outlook for anyone interested in buying or selling real estate.

Equally important: Federal Reserve chairman Ben Bernanke has strongly hinted that the Fed will lower short-term rates by at least a half percentage point at the end of January, and might lower rates again at its next meeting if needed.

Mortgage rates last week hit 5.73 percent on average nationwide for 30 year fixed rate conforming loans and 5.21 percent for 15-year fixed, and about the same for 5-year hybrid adjustables, according to the Mortgage Bankers Association of America.

You may recall that rates topped 6.8 percent briefly late last summer, so the cost of money for real estate purchases and refinancings is now more than a full percentage point cheaper than it was barely five months ago!

Low mortgage rates like these normally are a powerful stimulus for home sales, but there's a sobering underside to the current declines: They are being caused in part by bond market investors' fears of a U.S. recession.

Investors are putting their money into ultra-safe Treasury bonds, lowering the benchmark 10-year Treasury rates that affect the pricing of long-term mortgage money.

Let's not pull any punches about this: There does appear to be a growing possibility of recession. Consumers have begun pulling back on purchases, borrowing less, even using their credit cards less. Unemployment is up.

The White House and Congress are rushing to put together economic stimulus packages -- and some of the details could be beneficial to residential real estate.

For example, one proposal would allow millions of homeowners who do not itemize on their federal tax filings to write off their mortgage interest payments for the first time ever. Look for job stimulation plans, more help for troubled homeowners, and a lot more to be floated publicly in the next couple of weeks.

The idea is to ward off any recession, or at least keep it short and shallow.

Nobody can tell you with certainty how this will play out, but we'll be monitoring it for you on a daily basis.

In the meantime, here's a smart strategy: Make the most of what we've got -- the lowest interest rates and home prices we've seen in years in most markets.

Recession or no recession, that should be a winning combination if you are serious about real estate.

Published: January 17, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.