Real Estate

Rosengren: Housing recovery dependant on Fed intervention

Federal Reserve Bank of Boston CEO and President Eric Rosengren remains committed to the Fed’s aggressive fiscal policies even as other Fed bank leaders continue to cast some doubt on the long-term benefits and risks of quantitative easing.

Rosengren recently discussed his stance, noting that Fed initiatives, including the purchase of mortgage-backed securities, are playing a role in housing recovery.

Rosengren noted that it is imperative that monetary policy continues to support the economy considering the high unemployment rates as well as inflation undershooting the Fed’s 2% target.

“The national fiscal uncertainty cast a shadow on the economy, but it seems there have been some signs of underlying strength,” Rosengren said. 

He added, “I consider it particularly encouraging that some interest-sensitive sectors, which are likely to be especially responsive to monetary stimulus, are clearly showing themselves to be ‘on the mend.'”

Thus, the housing market continues to gain momentum during the recovery and Rosengren attributes this improvement to the Fed’s continued monetary policy. 

“The sectors of the economy that are showing the most improvement recently are those that economists generally consider to be the most responsive to monetary policy and interest rates,” Rosengren said. “Particularly notable is the improvement in the outlook for the housing market.”

Similarly, President and CEO Sandra Pianalto of the Federal Reserve Bank of Cleveland noted in a recent testimony that the Fed purchased more than $1 trillion of mortgage-backed securities in order to reduce mortgage rates and assist in aiding the housing industry. 

During the past year, real Gross Domestic Product growth averaged 2.6%. In contrast, growth in residential investment occurred at much higher rates. 

As a result, Rosengren expects this positive momentum to continue through 2013.

Click on the graph to view growth in real GDP and real residential investment.


In many parts of the nation, housing prices are beginning to rise, indicating that housing continues to steadily improve. Additionally, mortgage rates remain near cyclical lows and well bellow the average mortgage rate, another sign of the Fed’s monetary policy improving this sector, Rosengren noted.

“With prices edging up and interest rates at historic lows, there is now something of an incentive for a potential homebuyer to actively pursue buying a home,” he said. “This is the case because both mortgage rates and house prices could be higher if potential buyers delay their purchase decisions.”

This current dynamic continues to highlight the housing sector as a bright spot for the economy. Additionally, the ratio of home prices to rents continues to fall back to traditional levels after significantly increasing during the housing crisis, according to Rosengren.

As a result of the housing sector and other interest sensitive sectors posting vast improvements, Rosengren stated that he firmly believes that continued monetary accommodation “is absolutely appropriate and indeed needed.”

“As the recent FOMC statement highlighted, monetary policy should be guided by current and future economic outcomes, not calendar dates,” Rosengren said.

He added, “Interest-sensitive sectors have been responding to accommodative policy, and we should all continue to encourage a quicker recovery in those sectors.”  

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