The national economic headlines continue to be bearish, but some of the underlying fundamentals for real estate are pointing to better days ahead.

Take home mortgage rates: Last week thirty year fixed rates dropped below the seemingly-unbreakable five percent barrier for the first time on record, according to the Mortgage Bankers Association.

New thirty year loans went for an average 4.89 percent, while fifteen year loans were just above 4.6 percent.

Equally important, the outlines of the Obama administration's and Congress's plans to turn around the housing markets just became clearer. Tops on their list: Ending the foreclosure epidemics in some parts of the country through ambitious new programs designed to rework the terms of hundreds of thousands of mortgages that are now unaffordable.

In a letter to Congress last week, Lawrence Summers, Obama's nominee to head the National Economic Council, said the incoming administration plans to use portions of the remaining $350 billion in "TARP" -- or "Troubled Asset Relief Program" -- money to rework monthly payments for what Summers called "responsible home owners" now facing economic challenges in the recession.

Though Summers did not go into detail, the program is likely to be based on FDIC chairman Sheila Bair's proposed "mass-modification" concept that the Bush administration rejected last Fall.

Versions of that program might include widespread principal write-downs -- outright reductions in home owners' mortgage balances -- and guarantees to lenders in the event borrowers re-default.

The Obama administration is also likely to institute an immediate ban on all foreclosure actions, possibly for three months, and is certain to enact bankruptcy reform legislation allowing judges to modify mortgage terms to forestall foreclosures.

Why's this important for anyone involved in real estate? The key to stabilizing local markets, say most economists, is reducing the numbers of new foreclosures and other distressed-price transactions.

Foreclosures lower property values in surrounding neighborhoods, wherever they occur. That discourages potential buyers -- who don't want to plunge in as long as prices are still declining.

If the new administration and Congress can successfully reduce the numbers of new foreclosures, there's an excellent chance that the current combination of low prices and record low mortgage rates can have the effect they should be having: Spurring new sales.

Add in still another factor: Congress may create a new and improved tax credit -- one that's not repayable and covers all home purchases, not simply first-time buyers -- and we just might be looking at a FAR more positive outlook than a lot of people could imagine.

Published: January 20, 2009

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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.