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Home / Articles / Real Estate / Happy Herald Realty /  Real Estate News
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Thursday, October 4,2012

Real Estate News

Will the Fed Recovery Aid improve unemployment and housing woes?

Will the Fed Recovery Aid
improve unemployment
and housing woes?

WASHINGTON — The Federal Reserve’s ambitious effort to spur the recovery by aiding the housing market is likely to have an effect on home sales, given the pervasive weakness in the real estate market and the economy.

This is the first time the Fed has tied the duration of an aid program to its economic objectives. In announcing the change, the central bank made clear its primary reason was not deterioration in its economic outlook, but a determination to respond more forcefully — in effect, an acknowledgment its incremental approach until now had been flawed.

The concern about unemployment also reflects a significant shift in the priorities of the nation’s central bank, which has long focused on inflation. Inflation is now running below the Fed’s 2-percent annual target. But with the unemployment rate above 8 percent, the Fed’s policy-making committee suggested it might tolerate a period of somewhat higher inflation, promising to maintain stimulus efforts for a considerable time after the economic recovery strengthens. The weak job market should concern every American. The goal of the new policies is to quicken the recovery to help the economy begin to grow quickly enough to generate new jobs.

The Federal Reserve announced a third major round of asset buys intended to bring down interest rates and increase employment. While the economy appears to be at a path of moderate recovery, it isn’t growing fast enough to make significant progress reducing the unemployment rate. The Fed pledged to buy mortgage-backed securities at a pace of about $40 billion a month for an indefinite period of time. The effort is expected to increase prices and demand for those securities and push down mortgage rates, already near record lows. That might encourage more families to refinance their mortgages and others to buy a home, with ripple effects through the real estate industry and the rest of the economy. Analysts said it might help strengthen and quicken a tentative housing recovery.

In recent months, housing sales and, in some cases, sale prices have ticked up. Builders have broken ground on new projects. More than six years since the real estate bubble started to deflate, many housing analysts said, if cautiously, they believed the worst was over. The announcement seems to be a signal that the Fed is confident housing is turning around — and by itself could make home builders, mortgage financiers, real estate agents and buyers feel more confident. The financial markets cheered the Fed’s announcement. Stocks climbed, as did the price of many of mortgage-backed securities. But housing analysts cautioned the Fed’s effort was no panacea.

Millions of homeowners owe more on their mortgages than their homes are worth, leaving them in no position to sell. Millions more are unemployed or underemployed, and unable to afford a home.

The foreclosure crisis is continuing and credit is tight, leaving many people who would like to buy a house unable to get a mortgage. The big obstacles for people who want to buy are saving enough for a down payment and qualifying for a mortgage, because credit is still tight, the Fed program would not directly address those problems. The refinancing boom is being tempered by the lack of capacity to lend because mortgage servicers are at full capacity.


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