Most Federal Reserve officials are not impressed by the recent improvement in home sales, prices and construction activity, according to minutes of the central bank’s last monetary policy meeting.
The Fed continues to view the housing sector as “weak” despite its multiyear effort to stimulate the economy and keep mortgage rates low through continuing purchases of agency MBS.
The minutes of the September Federal Open Market Committee meeting reveal that the Federal Reserve governors and bank presidents are still waiting for the combination of rising home prices and historically low mortgage rates to produce a “stronger upturn in housing activity.” But it hasn’t happened yet, according to the minutes of that meeting.
Fed governors cite tight mortgage credit standards, and capacity constraints that continue to “weigh on mortgage lending.”
However, there are a few optimists among the FOMC members who are simply identified (like all members) as “participants” in the minutes.
“A few participants mentioned the possibility that economic growth could be more rapid than currently anticipated, particularly if major sources of uncertainty were resolved favorably or if faster than expected advances in the housing sector led to improvements in household balance sheets, increased consumer confidence and easier credit conditions.”
The FOMC minutes were released October 6. There are 12 voting members on the Federal Open Market Committee, including the seven Federal Reserve governors and five Federal Reserve Bank presidents. Other nonvoting bank presidents are allowed to participate in committee discussions.
Separately, IHS Global Insight chief economist Nigel Gault recently said the
In an Oct. 6 forecast “flash,” the chief economist noted that demand for housing is spreading from rental units to owner-occupied homes.
“Although we are skeptical of the effectiveness of the Federal Reserve's new quantitative easing (QE3) policy, its open-ended nature might convince nervous borrowers and cautious lenders that the downside risk on house prices is limited and that now is the time to act,” Gault said.
