Home Sales Show Bernanke’s Low Rates Are Gaining Traction

by 03 Jul 2012

(Bloomberg) -- For Mike and Kathryn Fry, the time was right to take advantage of the Federal Reserve’s low interest rates to buy a home.

While the couple had considered buying in recent years, they never pulled the trigger. That changed in April, when they decided on a three-bedroom, two-bathroom colonial home in Arlington, Virginia, and took out a 30-year fixed-rate mortgage at 3.75 percent.

“It was a combination of our personal finances being ready and rates being great,” said Mike Fry, 28, who works for a financial-services company. “The market seemed good, and we found a house in our price range.”

Their experience shows how Fed Chairman Ben S. Bernanke’s low interest-rate policy may finally be starting to pull housing out of a six-year tailspin, providing a boost to the broader economy. Home buyers are increasingly taking advantage of record-low borrowing costs as barriers such as falling prices and an overhang of foreclosures start to dissipate.

“The Fed is very much focused on the housing market because that’s typically the best way to channel low interest rates -- through home sales and refinancing,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York. “We are seeing some signs that the credit channel is unclogging modestly, and the Fed is going to be quite pleased with that.”

Home Sales

Sales of existing homes rose 9.6 percent in May from a year earlier, with 4.6 million homes changing hands at a seasonally adjusted annual rate, according to a June 21 report from the National Association of Realtors. A 15 percent jump in an index of contracts to buy existing homes that same month suggests the market will continue to improve.

The U.S. offers a contrast to the U.K., where the housing market is slowing amid concern over the economic outlook. Reports today showed U.K. mortgage approvals fell in May and construction shrank at the fastest rate in 2 1/2 years in June.

Read full article from Bloomberg



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