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Fed Will Wait and See on Housing Recovery

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Federal monetary regulators are currently meeting to determine whether to make any policy changes, and many financial experts believe that they will not make any more drastic alterations to the plans currently in place.

The Federal Reserve Board recently announced a new round of bond buying under the QE3 plan, and as such, it made no major announcements after its policy meetings this week. Instead, the Fed’s official plan will be to wait and see whether its efforts to keep interest rates depressed are taking hold and having a positive impact on the broader economy.

Specifically, QE3 was designed to keep short-term interest rates at or near the record lows currently being observed across the lending industry through at least the middle of 2015, the report said. The plan will, in theory, only allow rates to begin rising again when it is more convinced that a full economic recovery is under way. Lower interest rates tend to have the effect of increasing both stock prices and home values nationwide because they encourage more buying from consumers eager to cash in on the deals.

Further, though, it’s worth noting that many within the Federal Reserve currently wonder whether QE3 can or will work, the report said. While the plan was originally approved last month with an 11-1 vote in favor of spending $40 billion a month on bonds, a growing number of regional Federal Reserve presidents have expressed some amount of disquiet with the decision.

However, it’s unlikely that even the staunchest opponents of the deal could dispute the effect QE3 seems to have had on the mortgage market, the report said. The interest rate for a 30-year fixed home loan recently dipped to just 3.36 percent, the lowest recorded since Freddie Mac began keeping records on this data in 1971. That, in turn, led to increases in sales, home prices and even new construction.

Housing affordability is still hovering at all-time highs, which many experts believe will force more buyers into the market, increasing competition and therefore prices. Higher prices will benefit underwater homeowners, who in turn may be more likely to become interested in selling their properties.

Image: epicharmus, via Flickr

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