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Fed may have limited effect on real estate

WASHINGTON — The Federal Reserve's ambitious new effort to aid the recovery by aiding the housing market is likely to have a modest effect on sales, given the pervasive weakness in the economy and real estate market, experts predicted Friday.

"The incremental benefit of slightly lower mortgage rates will be small," Paul Diggle, a property economist at Capital Economics, wrote in a note to clients.

"After all, most borrowers in a position to refinance have probably already done so. And it's not obvious why a would-be buyer who wasn't tempted by a 3.7 percent mortgage rate would be by, let's say, a 3.25 percent rate," he wrote.

Other analysts echoed that analysis, saying that the Fed program would help the housing recovery at the margins, but that even lower mortgage rates would not in and of themselves spur a strong turnaround.

On Thursday, the Federal Reserve announced a third, major round of asset purchases intended to speed up the stalling recovery, bring down interest rates and increase employment.

The Fed is now aiming at the unemployment problem by purchasing mortgage-backed securities at a pace of about $40 billion a month for an indefinite period.

The effort will increase prices and demand for those mortgage-backed securities and push down mortgage rates, already near their historical lows. That might encourage more families to refinance or purchase a home.

Analysts said it might help strengthen and quicken an already existing, but tentative, housing recovery. In recent months, housing prices have bottomed out in many markets. Home sales have ticked up. Builders have broken ground on more new projects.

On Thursday and Friday, financial markets cheered the Fed's announcement. Stocks climbed, as did the price of many of the mortgage-backed securities the Fed vowed to buy.

Fed may have limited effect on real estate 09/14/12 [Last modified: Friday, September 14, 2012 10:27pm]
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