Cut Rates
By adding Treasury purchases, policy makers “would continue to lower mortgage rates and create conditions that would be favorable for a continued recovery in the housing market,” said Roberto Perli, a managing director at International Strategy & Investment Group Inc. in Washington.
“It would also -- if house prices go up more -- mean more households would be able to refinance their mortgage,” said Perli, a former economist for the Fed’s Division of Monetary Affairs. “That’s just like a tax cut or a pay increase because you have more disposable income in your pocket.”
Fed purchases of mortgage bonds have helped revive the housing market by pushing down the rate on a 30-year, fixed-rate mortgage last month to a record 3.31 percent.
New-home sales rose 17 percent in October compared with the prior year, while existing-home sales increased 11 percent. Home prices gained 3 percent from a year earlier in September, according to the S&P/Case-Shiller 20-city home-price index.
“Pent-up demand, rising home prices, low interest rates and improving customer confidence motivated buyers to return to the housing market,” Douglas Yearley Jr., chief executive officer of Toll Brothers Inc., the largest U.S. luxury-home builder, said in a Dec. 4 earnings call.
Six-Year Slump
Homebuilder stocks have risen after a six-year slump. The Standard & Poor’s Supercomposite Homebuilding Index of 11 homebuilders has surged 72 percent this year, compared with a 13 percent gain for the broader S&P 500 through yesterday.
Even with the recent improvement, home prices remain 29 percent below their July 2006 peak.
Policy makers “do not want mortgage rates to climb much higher,” said John Lonski, chief economist for Moody’s Capital Markets Group in New York. “They will do their utmost to keep long-term borrowing costs on the low side.”