Even though negative economic reports and the debt ceiling debacle whipsawed investors this month, the housing market stands to benefit from the Federal Reserve decision to keep the fed funds rates low through 2013, according to Freddie Mac. In its August 2011 U.S. Economic and Housing Market Outlook report the government-sponsored enterprise said “an upshot of the heightened degree of market uncertainty is that it may have encouraged” the Federal Open Market Committee to be more specific about how long it plans to keep the rate near zero. Freddie said in its update the central bank’s decision to keep rates low for an extended period of time is a benefit when looking at long-term growth in the housing market. However, some of the market conditions causing the Fed to keep rates low occurred a few years back. Freddie points to the recent revelation by the Commerce Department’s Bureau of Economic Analysis that the U.S. economy fell more than previously estimated during the Great Recession: 5.1% from peak to trough. In addition, growth in the first half of 2011 underperformed expectations, with the economy growing at an annual rate of 0.8% — a figure too weak to generate enough new jobs for the growing workforce, Freddie said. Freddie Mac also said borrowers are now paying $130 billion less on their mortgage interest with rates at historical lows. The economy experienced a break in the clouds with 117,000 jobs added to the payrolls last month, that news was quickly shattered by Standard & Poor’s downgrade of the nation’s debt rating. “The capital markets barely had time to savor the July payrolls when (S&P) lowered its long-term sovereign credit rating on the United States of America to AA+ from AAA,” Freddie said. “That release coupled with renewed concerns over the Eurozone’s ability to manage its debt crisis precipitated a roller coaster ride for the capital markets.” Write to: Kerri Panchuk.
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