The recovery is artificial in the sense private lenders cannot compete with the government’s willingness to lose money. There would be mortgages made if the government stopped backing the market, just not at terms buyers would like.
The question potential buyers need to ask is how long the intervention can go on. Fundamentals are obviously out the window. Much like the blowoff top in the bubble from say 2004-2006, when everyone said it couldn’t last, I have come to believe the government intervention will last longer than most here believe possible. I think government will go so far as to risk the currency over bailing out the banks. That means no letup in intervention schemes. Once the banks are adequately bailed, only then will government think of backing out of the market.
The big surprise to me is the fact that rates are about the same as they were when the Federal Reserve stopped buying MBS. That can’t be expected to last, but what do I know?
