Friday, September 28, 2012

How Do Home Sales Help the Economy?


Last week, the Federal Reserve announced it would attempt to keep mortgage rates low until 2015 to help spur housing and the economy, but the trillion dollar question is, "Will the Fed's move achieve that goal?"

The Fed said it will nearly double its purchases of mortgage-backed securities, bringing the total purchased each month to $85 billion each month, at least through the end of the year. The Fed's statement indicated there could be larger purchases
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It's widely believed the Fed's $1.25 trillion in mortgage bond purchases, that ended in March 2010, substantially lowered mortgage interest rates.

Mahesh Swaminathan, a Credit Suisse senior mortgage strategist, says the latest Fed action could further lower rates, bringing them down to 3.25 percent

Lower mortgage rates should help in two ways.

·  By reducing the cost of buying a home -- Here's a rule of thumb: every 1 percentage point drop in mortgage rates lowers the cost buying a home 10 percent! That helps buyers qualify for larger mortgage and a larger home. Lower rates also mean lower monthly payments that could help buyers who couldn't qualify for a larger payment.

·  By increasing disposable income for homeowners -- By refinancing into a lower rates, current homeowners can save several thousand dollars every year. The Fed hopes that homeowners will spend those savings on discretionary purchases and help prime the economic pump.

The Fed's effort to stimulate the economy focuses on housing because housing is a cornerstone of the economy. Housing's contribution to job creation and the economy can't be overstated.

According to the National Association of Realtors:
  • For every two homes sold, one job is created.
  • Each home purchased pumps up to $60,000 into the economy.
  • Home ownership accounts for more than $2 trillion of the U.S. gross domestic product.
For more information, contact:
Dianne Dunn
Keller Williams Realty, New Bern NC
DDunn@DDunn.com
252-671-1932