Last week we saw mortgage interest rates fall to levels not seen since January this year and then again back in 2003. Falling from about 6.25% the week before, a 5.5% 30 year fixed rate mortgage became available once again. This was due to a surprise decision by the U S Treasury to invest billions of dollars in the mortgage bond market. Initially, I thought this was simply a knee-jerk market reaction to the influx of money and these rates would not last too long. I believed that the condition of the economy would continue to weigh heavily on investment decisions and rates would gradually start to rise again over the next several months until we were back to where we started. Then we got some more news from the U S Treasury. A Wall Street Journal article from December 1st discussed Treasury Secretary Paulson’s remarks from the same day and it read: “Also, the Fed said it would purchase up to $100 billion in GSE (government-sponsored enterprise) debt through a series of competitive auctions starting this week. The Fed also plans to purchase up to $500 billion in mortgage-backed securities backed by GSEs such as Fannie Mae and Freddie Mac. Officials aim to have that program running in the next several weeks.” Then came this analysis from CNBC: “The Treasury Department is considering a plan to boost the depressed housing market by easing mortgage rates on new home loans. The plan, which is in the development stages, would bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages. The plan, which was first reported by the Wall Street Journal, was confirmed by CNBC. Under the plan, the Treasury would buy securities underpinning loans guaranteed by Fannie and Freddie which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. Officials have said that this plan is different from the one that had previously been championed by FDIC’s chairman Sheila Bair. Earlier Wednesday, bond guru Bill Gross told CNBC that the 30-year fixed-rate mortgage could fall as low as 4.5 percent as the economy stabilizes. "The mortgage rate will come down another 50 to 100 basis points," Pimco's founder and chief investment officer said. "That's basically what the government needs. They need a 4 1/2 percent to 5 percent 30-year rate in order to support home prices and, yes, to encourage refinancing and the process of reliquification within the economy." 4.5%! Are you kidding me? Unbelievable! We have not seen the 30 year fixed rate under 5.0% in many decades. It’s completely absent from my memory! (Who cared what interest rates were when you’re a kid!) FreddieMac publishes rates back to 1971 and it simply has never been there. But then I read this opinion from Larry Baer of “Market Alert”, a mortgage market analyst. “I certainly don't want to rain on anybody's parade here - but there are a couple of things I think you ought to consider in order to put this story into perspective. The Treasury Department already has authority to buy billions of dollars of mortgage-backed securities - it has yet to use that authority to any large degree. Does additional purchase authority suddenly create a storm of mortgage-backed security purchase activity that didn't exist before? How much additional buying power is necessary to push 30-year fixed-rate mortgage-backed securities down to 4.5%? The Federal Reserve announced plans to buy $500 billion of mortgage-backed securities from Fannie and Freddie on Monday - which did cause rates to spike lower - for a couple of hours - before mortgage interest rates finished flat to slightly higher through this morning. “ and then he said “So in a nutshell, we're talking about a program that doesn't even exist, that has no qualifying parameters, no timeline for implementation if it actually takes form and that will - at best - offer a note rate that is roughly 50 basis-points less than is immediately available in the market today. “ Confused? Me too. But the one thing we now know is that the Federal government will do everything in its power to keep mortgage rates low in order to stimulate the housing market. Low housing prices and low interest rates make this the best real estate buying opportunity ever! It’s a great time to buy or refinance because this is mortgage rate history! I will analyze buying power in a later email so watch for it. As always, if you have any questions about this or any other mortgage subjects, feel free to call me anytime.