The one positive in all the uncertainty surrounding the nation’s debt was a plunge in Treasury yields, which in turn sent mortgage rates to record lows.

The 30 year fixed hit a near-low of 4.45 percent last week from 4.57 percent, and the 15 year made a new low of 3.52 percent, according to the Mortgage Bankers Association. Those low rates pushed refinance applications up 7.8 percent and purchase applications up 5.2 percent (both seasonally adjusted).

So are we housing geeks now jumping for joy? All good? Maybe not so much.

“Refinance application volume increased, but even though 30-year mortgage rates are back below 4.5 percent, the refinance index is still almost 30 percent below last year’s level. Factors such as negative equity and a weak job market continue to constrain borrowers,” notes the MBA’s VP of research and economics, Michael Fratantoni. “Purchase activity increased off of a low base, returning to levels of one month ago, but remains weak by historical standards.”

So even ridiculously low rates are not exactly boosting the housing recovery; that’s because rates have been historically low for a while.

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I was hoping not to have to write this particular piece, but it seems I may have no choice, so here we go with housing.

What happens to today’s housing market without FHA loans?

Right now FHA loans are about 20 percent of the overall mortgage market (purchases and refis) and 40 percent of purchase applications.

Compare that to around 11 percent of the overall market during the last shutdown in 1995. For the nation’s big public home builders, it’s far more of an impact, according to analysts.

FHA Share of Borrowers:

“We have been alerted that FHA will maintain the ability for lenders to secure case numbers – one of the first steps in originating a FHA mortgage – and underwriting will not be impacted either. However, lenders will be challenged to close these loans during a government shutdown as they will not be able to secure mortgage insurance,” says Bob Walters, chief economist at Quicken Loans.

No FHA, which is really the only low down payment (3.5 percent) game in town for the somewhat less credit-worthy, would hit first time buyers particularly hard:

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The sales pace of newly built homes is now at the lowest on record.

Sales dropped nearly 17 percent in February after a big drop in January. Put that on top of the nearly 10 percent February drop in existing home sales reported earlier this week and the incredibly low level of mortgage purchase applications, and you get a clear case for a double dip in housing.

Remember, this number from the Census is based on contracts signed in February, not closings, like the existing home sales number from the Realtors. That means it is a real indicator of how the Spring market is starting.

“Further, the plunge in new home prices [down 8.9% year over year] does not bode well for existing sales prices in February, which will close in March and April and be reported by NAR in April and May,” notes analyst Mark Hanson.

I really don’t have to tell you that, since the vast majority of you voting on the blog cast the double-dip vote yourselves. The question now is: How long will it last? As I noted yesterday, more than a hundred economist and housing types surveyed by MacroMarkets said there would not be real recovery in housing until 2013.

I want to talk pros and cons.

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