Is QE3 Good for the Housing Market?

Yesterday, the Federal Open Markets Committee announced a new round of “quantitative easing,” or QE3, meaning the Federal Reserve will  fire up the federal printing presses to buy $40 billion worth of  mortgage-backed securities (MBS) every month on an open-ended basis in an effort to further drive down historically low interest rates.

Federal Reserve Chairman Ben Bernanke said QE3 should put downward pressure on mortgage rates, helping the housing market. By lowering borrowing costs and spurring  banks to lend more, the Fed hopes to induce more spending and eventually set  the stage for more hiring. The Fed tied its bond-purchase program explicitly to jobs, saying it will keep buying bonds until it sees a substantial improvement  in the labor market.

Here’s who benefits from QE3:

Homebuyers & Investors
If  you’re a first time homebuyer or an investor looking for investment property  for cash flow, QE3 is good news. Interest rates are bouncing around at about 3.55 percent on a 30-year fixed-rate loan, while 15-year fixed-rate mortgages average around 2.85 percent, according to Freddie Mac. With rates this low you  can essentially get free money — like a 15-year mortgage that basically tracks the rate of inflation if you have good credit and make a big down payment. QE3  will take them lower or at the very least, maintain the current rates.

Meanwhile, QE3 may have a bigger impact on refinancing than on home sales because the  mortgage rate hasn’t held home sales back, unemployment and underwater borrowers have. With some12 million borrowers underwater and on the verge of foreclosure, QE3 may provide an opportunity to refinance into a low fix-rate loan and avoid foreclosure or a short  sale.

Bernanke said he is prepared to extend bond-buying well into next year. As of June 30, the Fed owned $870 billion in MBS.

Do you think QE3 would benefit the economy and boost the housing recovery? Or should the government get out of the  housing sector and let it mend on its own?

Related News
FHA to Sell Troubled Loans in Bulk
Fed Still Attending to the Nation’s Housing Sector
Mortgage Rates Are Down But Are They Down Enough?

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