- QE3 Will Give Rebounding Homebuilder Stocks An Extra Push
- Double-Dip in Home Prices Could Restrain Economic Recovery
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.
And now with QE3 (the third round of quantitative easing), the central bank has promised to keep buying $40 billion per month of MBS until...well, until forever if needed.
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."
Existing home sales in February sank 9.6% from the previous month, while prices fell 5.2% to a median of $156,000, the lowest since April 2002. Existing homes comprise 90% of the housing market.
Meanwhile, new homes sales in February plummeted to an annual rate of 250,000, far below the norm of 700,000 and a level half that of 1963, when the United States had 120 million fewer residents than its current population of 310 million. The median sales price plunged 8.9% year-over-year.