QE3 – Federal Reserve Chairman Ben Bernanke's $40 billion-a-month booster shot – could be just what the doctor ordered to keep homebuilder stocks surging.
The Fed's buying of mortgage-backed securities (MBS) is designed to help push down 30-year mortgage rates — a major incentive for consumers to buy a house.
The strategy is already working. Last week, just a month after QE3 was announced, mortgage interest rates fell to the lowest level on record.
The average 30-year loan stood at 3.39% as of Oct. 11- down from 6.1% at the start of the recession in December 2007.
And the Fed has said it plans to keep its own federal funds rate, a benchmark for interest rates, at "exceptionally low levels" at least through mid-2015.
Such policies, designed to jumpstart the economy by boosting the housing market, necessarily benefit homebuilder stocks as well.
"You get more benefit when people buy homes," Bernanke says. "It's the purchases of new homes that generate the construction activity, the furnishing, all those things that help the economy grow."