The historical way to improve a struggling economy is to lower interest rates. This helps improve the housing market, which has played a key role in every economic recovery since 1982. However, rates for U.S. mortgages are the lowest in 40 years and the economy is still floundering. Though they want to purchase a home, many Americans are finding it difficult to qualify for a mortgage.
In July, existing home sales dropped to their lowest since November, with the median price falling 4.4 percent from just one year earlier. Stricter lending standards, an increasing number of foreclosures, and high levels of unemployment are placing pressure that even low borrowing costs cannot relieve. Policymakers with the Federal Reserve are now looking for other ways to stimulate economic growth.
Brad Hunter, a housing economist, thinks that actions taken by the Fed will not make a meaningful difference in the housing market. He said that mortgage rates are not a key factor because they are currently very attractive. In addition to possibly lowering rates further, the Fed may reduce the interest rate for excess bank reserves it holds.
Barclays Capital chief U.S. economist Dean Maki commented that it is difficult to argue that interest rates are hindering economic recovery. The housing market has experienced a “massive boom-bust cycle,” he said, and the process of getting rid of excess inventory is likely to be a long one. A housing rebound is needed to restore U.S. household net worth and spur consumer spending.
Many consumers are tired of relying on cash advances to pay the bills. Experts say that the jobs program proposed by the President and any new monetary policy will not make things better for consumers. The housing market must be addressed, with a focus on lending standards, not the cost to borrow, necessary at this point.
