QE3 unlikely to have major effect on housing market
Now that the markets have had a full 24 hours to digest news that the Federal Reserve would purchase an additional $40 billion worth of agency home loans each month as part of a third round of quantitative easing, the true affect of it on the housing market is becoming more clear.
As noted yesterday, the most immediate impact will be on mortgage rates, which will likely trend down back towards the record-low rates achieved earlier this summer. CNBC said a 0.125 percent drop in rates, which is what occurred after yesterday’s announcement, translates into a 1.5 percent increase in purchasing power for consumers. That could boost home sales and home prices, while coaxing more sellers into the market.
However, As Several Analysts Reminded The Wall Street Journal, interest rates have been this low for a long time. Unless they come down significantly, home sales are unlikely to improve. What’s keeping the market from a full-fledged rebound is tight credit standards and diminished savings preventing down payments.
Similarly, because the U.S. has just endured a wave of refinances and banks are already overburdened with applications (which, in some cases, keeps them from passing lower rates on to consumers), it is unlikely that a significant jump in those transactions is in the offing.
The continued lower rates do indicate that the Fed is committed to ensuring the housing market doesn’t fall any further, one analyst said. [CNBC] and [WSJ] — Adam Fusfeld