While the Treasury Department’s mortgage-backed securities (MBS) purchase program is set to come to a close at the end of March, Radar Logic director of research Quinn Eddins projects that given the narrow spreads between agency MBS and 10-year Treasury notes in the last weeks of the program, it appears that capital market participants expect private demand to replace Fed activity when the program ends. “This will help keep mortgage rates low and maintain the flow of mortgage credit after the Fed’s exit,” Eddins wrote in Radar Logic’s monthly outlook report and Residential Property Index (RPX) price composite. “Private buying will probably come from money managers who are underweight mortgage-backed securities in their portfolios relative to their benchmarks,” he added. Motivated home sales took a greater share of total sales volume, causing the RPX to drop 4.2% from December 23, 2009 to January 20, 2010. In December, the RPX increased 0.2%. But according to Radar Logic, its composite index of home prices in 25 metropolitan statistical areas (MSA) didn’t decline from an increase in the motivated sales count — foreclosures auction sales, and liquidity-driven sales by financial institutions and foreclosure service firms — but rather from a decrease in traditional sales transactions. This seasonal pattern of non-distressed sales volume was experienced in January and August of 2009, Radar Logic said. January’s decline, along with the 4% decline from mid-August to late September, effectively offset the composite’s rapid growth from April to mid-August 2009, and as a result, the composite remained essentially flat year-over-year, Radar Logic Eddins wrote. The RPX transaction count was up 41.9% from January 2009 to January 2010. That’s the highest increase in transactions since Radar Logic began its index in 2000. In absolute terms, transactions increased by 14,000 year-over-year, comparable to previous year-over-year increases during the housing booms in January 2004 (11,000 transactions) and January 2005 (15,000 transactions). But in percentage terms, the 2004 increase was 14.2% and the 2005 increase was 16.7%. However, month-over-month, transactions were down 30.3%, above average for the time frame on a percentage basis, but below average on an absolute basis, Eddins said. Regionally, prices were down in the Midwest and South on a year-over-year basis, while prices remained stable the West and Northeast. But from December to January, the largest decline was in the West, followed by the South and Northeast. Foreclosures are the principle hurdle to recovery in the nation’s housing markets, Eddins wrote, as they threaten to expand the inventory of low-priced homes for sale. But improvement in jobs and the economy could spur household formation and help absorb the excess supply. Despite poor winter weather, Eddins wrote the economy is growing and so are jobs, although some of those new positions are temporary government work related to the 2010 national census. In addition, Eddins said credit conditions are showing signs of improvement, notably a report that the smallest percentage of banks tightened standards on prime mortgages lending since 2007 and other projections that mortgage originations will total $726bn 2010 and $828bn in 2011. Write to Austin Kilgore.