The central bank may want to do more to help the housing market and stimulate the economy, but it may be out of juice
During the week ending October 6th, the average fixed interest rate on a 30-year mortgage dipped below 4% for the first time, according to Freddie Mac. The Mortgage Bankers Association reported that refinancing applications rose -- by just 1%. These historic rates may not be low enough for the Federal Reserve: reports indicate that some central bankers want to encourage more refinancing and home sales. But have the Fed's efforts reached a saturation point?
The Fed's Next Move?
When the Fed meets next week, the housing market may be on its mind. Its actions announced after its September meeting were squarely aimed at mortgages: it sought to push down long-term interest rates through two policy tweaks. Comparing the week ending October 14th to the week ending September 16th, the Fed's effect on the housing market hasn't been particularly impressive: refinance applications are down 11% and purchase applications are down 6%.
The Washington Post reports that the Fed may humor buying additional mortgage-backed securities to push down rates even farther. At this time, they're reinvesting maturing MBS into new MBS. But a new program would expand their holdings of the mortgage securities. The question is: would it really do much?