If low-cost mortgage money and property prices provide the fuel to power strong housing sales, we just might be on the verge of a takeoff, at least a modest one.

In a week that otherwise was filled with sobering economic numbers -- new construction starts down sharply, unemployment filings up, retail spending down -- mortgage rates provided a ray of hope for real estate in the months ahead.

The Federal Reserve's unprecedented moves to reduce inter-bank lending rates close to zero, and to pump even more capital into mortgage backed securities, had immediate, dramatic effects in the market.

Rates had already begun falling from about five and a half percent earlier in December down to 5.2 percent last week for 30 year fixed-rate loans, according to the Mortgage Bankers Association.

But the Fed's latest moves sent rates plummeting even lower. Some major banks, such as Wells Fargo, were quoting 30-year mortgages in the upper fours -- rates not seen in more than half a century.

Wells, Wachovia and other banks also cut their prime rates -- crucial to millions of consumers who have home equity credit lines and credit cards -- to three and a quarter percent from four.

But here's the big unanswered question: What impact will mortgage money at historic lows have on local real estate markets in a recession with rising unemployment?

Lawrence Yun, chief economist for the National Association of Realtors, has estimated that 500,000 resales could be stimulated by a one point drop in rates like we've just seen.

The reason: He believes that, even with higher unemployment, there is a huge pent up demand to buy houses in many parts of the country -- especially first time purchasers who see prices at 2003 and 2004 levels.

Combine those bargain prices with rock bottom mortgage rates, and the real issue for thousands of potential buyers in the coming months may well be: What are you waiting for? This is about as good as it gets!

Already there are signs of sharp sales increases in dozens of markets where foreclosures, REO and short sales dominate local real estate listings.

As perhaps an extreme example, the single hardest hit market of the decade in the U.S. -- Detroit -- which has been the epicenter of a regional economic downturn for years, has racked up a 47 percent increase in home sales this year, compared with 2007.

No doubt a lot of those sales were REO. But think about it: How else can the turnaround process begin?

Published: December 23, 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.