Foster Weeks publishes a weekly mortgage report which is updated every Monday morning. How is this affecting the San Francisco real estate market? Read our weekly and monthly market reports. Here’s what Mr. Weeks says about last week’s activity:

“IT’S A RECESSION WHEN YOUR NEIGHBOR LOSES HIS JOB; IT’S A DEPRESSION WHEN YOU LOSE YOURS.” Harry S. Truman. Very true words indeed – and last week brought some market action when Fed Chairman Ben Bernanke discussed the recession, commenting that our economic recovery still faces “formidable headwinds.” As you can see in the chart below, the current recession we have been in has been the longest in nearly half a century.

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Chart: Post World War II Recessions

And because negative economic comments or news causes money to flow out of Stocks and into Bonds, Bernanke’s words helped Bonds and home loan rates to improve early last week…but these improvements were short lived.

Bond prices and home loan rates responded poorly to the Treasury auctions of last week, as the Treasury instruments being auctioned off are in direct competition with Mortgage Backed Securities…and the continual record amounts of supply hitting the market requires record amounts of buying to take place as well. And remember – the Federal Reserve is winding down their Mortgage Backed Security purchasing program, so as they stretch out and ration their remaining purchases through the first quarter of next year, the reduced amount of their buying just adds to the problem.

And as with any item, when there is lots of supply and diminishing demand – Economics 101 tells us that the price of that item will subsequently go down. So as Bond prices go down, home loan rates go up – and last week saw home loan rates increase by at least .125% across the board.

Read the entire article and see the graphs here.

- Foster Weeks