As
it says in the article, the Federal Reserve cannot fix the housing problem
anymore. This news is a reflection on the U.S. Monetary Policy Forum, which is
a one-day meeting presented by the University of Chicago Booth School of
Business. Attendance includes Federal Reserve officials, members of foreign
central banks and economists from some of the world’s largest banks and top
universities. The U.S. Monetary Policy was held last Friday, February 24, 2012.
This forum focused heavily on weaknesses in the housing market and was not very
optimistic. Traditionally, the Fed aided the housing market by lowering its key
interest rate and thereby owning mortgage rates. The main problem is that the
current Fed’s interest rate is already near zero. Moreover, the mortgage rates
are already at record lows. However, even through the rates are approaching to
a historic low, the housing market remains in a slump. There are some arguments
saying that the Federal Reserve can continue to lower the interest rates with
unconventional moves; an example is the asset purchases that is called
quantitative easing. However, it states (in this article) that such policies
are unlikely to have a meaningful impact on housing for now. The main reason for
this is that more of the homeowners who might qualify for refinancing at lower
interest rates have already done so. Furthermore as Fed president Charles
Plosser stated that the Fed’s policies—buying assets that target housing
specifically like mortgage-backed securities—has already overstepped its bounds
in 2008, when it started buying mertgage-backed securities. He believes those
actions have blurred the lines between fiscal and monetary policy, which is a
growing problem in the wake of the financial crisis that Plosser calls
“dangerous.”As says in the article, according to the purview of Congress, the
Fed Reserve officials have recently become more outspoken about problems concerning
the housing market. According to St. Louis Fed President James Bullard’s
opinion, the housing market is largely out of the Fed’s hands now.
As shown in this article,
government intervention is a means to control or alleviate the problems
existing in the economy. Nevertheless, policies are not always as effective as
they may seem. Therefore, the people and policy tools that should be involved are
tough issues that the governments and economists are facing today.
3 comments:
It seems to me that the government has done almost all it can do to help the housing market without upsetting everything else. Lowering interest rates more won't even have as much of an effect as it has already had, and that hasn't been enough.
The Fed has done a lot to help the current housing crisis. The housing market is expected to get worse, with an expected increase in foreclosures and vacant properties. I think that it comes down to the banks. People are not able to get loans for a house which is result of many foreclosed homes remaining vacant. People are not able to get loans from the bank because they weren't able to pay their old mortgage (most of these which were subprime mortgages) which has decreased their credit worthiness. Also banks are hesitant to lend money like they used to which makes it difficult for first time homeowners to buy a home.
Over the last four years housing prices nation wide have been dropping there are many markets where supply outweighs the demand and prices still have a longway to come down. A stable market will allow for stronger market for loanable funds as banks have less risk, this can reverse the nationwide trend of the collapsing housing market (See CBS 60 Minutes Report link below). The fed has done the most it can by pushing interests rates lower but there is little the fed reserve can with the current market discrepancies with supply and demand.
http://www.cbsnews.com/video/watch/?id=7392090n
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