Bernanke is helping to stabilize U.S. house prices
U.S. Federal Reserve Chairman Ben S. Bernanke is delivering record low mortgage rates and a refinancing boom that’s putting cash in home owners pockets and helping to stabilize house prices.
Fixed 30-year mortgage rates fell to a record low for the second consecutive week last week, hitting 4.78 percent, Freddie Mac said yesterday in a statement. The rates are the lowest in records dating back to 1971. This has helped mortgage applications in the U.S. rise for the fourth straight week as a decline in borrowing costs spurred homeowners to refinance, and new home sales rose in February. The Fed’s effort to bring down fixed rates may give consumers as much as $25 billion, said Mark Zandi, chief economist of Moody’s Economy.com.
Cheaper Home Prices
Cheaper financing may also help to turnaround the housing market. Sales of previously owned homes rose 5.1 percent to 4.72 million at an annualized pace in February from the prior month as low mortgage rates spurred demand. The National Association of Realtors affordability index rose to a record in January, due to lower home values and mortgage rates. NAR said in a March 23 report, the median U.S. home price fell to $165,400, down 28 percent from its 2006 high.
Bernanke cited lower mortgage rates in testimony in February as evidence that Fed policies were working. He said the decline in financing costs caused by the central bank’s purchases of mortgage-backed securities this would help ease the financial strain on homeowners.
Improving U.S. Housing Market
“Over time, lower mortgage rates should help to improve conditions in the housing market, whose persistent weakness has had a major impact on economic and financial conditions more broadly,” Bernake said.
Forecast by the mortgage bankers’ group raised its 2009 home-loan originations by $800 billion to $2.78 trillion last month. Refinancing will increase to $1.96 trillion in 2009 and purchase originations will total $821 billion. This is evidenced by a surge of refinancing and low interest rates sent homeowners to apply for new loans.
“We have seen evidence that home sales are bottoming,” said Jim O’Sullivan, senior economist with UBS Securities LLC, in Stamford, Connecticut. “This should be positive.”