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California Association of Realtors just released its report for June 2010 real estate activity.

Calif. median home price: $311,950 (Source: C.A.R.) (note: compared to $324,430 previous month)

Calif. highest median home price by C.A.R. region: Santa Barbara So. Coast $914,760 (Source: C.A.R.) (note: compared to $905,000 previous month)

Calif. lowest median home price by C.A.R. region: High Desert $1265,620 (Source: C.A.R.) (note: compared to $126,430 previous month)

Calif. First-time Buyer Affordability Index - First Quarter 2010: 66 percent (Source: C.A.R.) (note: compared to 64 percent Fourth Quarter 2009)

Mortgage rates – week ending 7/22/10:

• 30-yr. fixed: 4.56%; Fees/points: 0.7% (note: compared to 4.75% and 0.7% points last report)
• 15-yr. fixed: 4.03%; Fees/points: 0.7% (note: compared to 4.20% and 0.7% points last report)
• 1-yr. adjustable: 3.7%; Fees/points: 0.7% (note: compared to 3.82% and 0.6% points last report)

- California Association of Realtors & Freddie Mac

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:

“UNCERTAINTY AND MYSTERY ARE THE ENERGIES OF LIFE.” And while the Bond market may agree with R.I. Fitzhenry’s words about uncertainty, most investors in the Stock market don’t… just ask Fed Chairman Ben Bernanke. Last week, Mr. Bernanke testified before the Senate and House Banking Committees, making several cautious comments on the state of the labor market and inflation, as well as stating that the Fed would be ready to take action should economic conditions worsen. But the comment that spooked Stocks and helped Bonds was when Mr. Bernanke said the economic outlook is “unusually uncertain.” Stocks hate uncertainty but Bonds usually perform well as a safe haven, so Bonds and home loan rates improved upon the utterance of these words.

Mr. Bernanke also stated that one way to normalize the size and composition of the Federal Reserve’s securities portfolio would be to sell some holdings of agency debt and Mortgage Backed Securities. And an article in the New York Times concurred, stating that the Fed’s MBS holdings are already problematic and put the Fed in a tough position where it may find itself having a conflict of interest – and here’s why.

While inflation is subdued for now, it’s only a matter of time before the Fed will need to hikes rates in order to keep inflation controlled. But any hike in rates would cause the Fed to lose significant value on their Mortgage Backed Security holdings. So the tough question is… how will the Fed act, in light of this conflict?

Remember, the Fed purchased $1.25 Trillion worth of Mortgage Bonds, as well as several hundred Billion in Treasuries. Those purchases helped drive rates down towards historic low levels – and yet the housing market is still not entirely healthy. So this also begs the question, what would cause a different result? One perspective is that the Fed – like many in Washington – missed the point. The problem is not that rates need to be lower. Many individuals already want to purchase or refinance at today’s low rates, but are unable to do so because of tighter underwriting guidelines, as well as low valuations. A perfect example is the “no income verification” loan – which has been cast in a negative spotlight as a “liar loan” and virtually eliminated. But there has been a good track record for those loans in the past when underwritten properly. If the government were to direct some resources towards reestablishing some of these more reasonable lending tools, the results might be better.

Instead – the sweeping Financial Reform Bill was signed into law last week, and the implications of this 2,300-page legislation are sure to be broad. Former Fed Chairman Alan Greenspan himself said that every page appeared to be loaded with unintended consequences… so as this legislation is analyzed and dissected, you can be assured I’ll be keeping a close eye on the impacts it may have and will keep you informed.

Read the entire article and see the graphs here.

- Foster Weeks