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Restarting the Housing Market

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This is very good news:

In addition to consumer spending, the Fed announced it would buy up to $100 billion in mortgages held by Fannie Mae, Freddie Mac and the Federal Home Loan Bank in an effort increase the flow of money into the housing markets and lower interest rates. The Fed may also buy another $500 billion in bundles of mortgage backed securities issued by the agencies.

The aim of the program is to “reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.”

The collapse of housing triggered the recession, and the lack of mortgage financing has deepened it. Jump starting the home mortgage market is a common sense approach to stimulus.

Brian Wesbury, chief economist of First Trust, has argued on my program in the past two weeks that equities are a great buy right now, and that real estate had reached its correct value. With some mortgage rate relief, housing could recover quickly.

We are a year or so away from the ability to judge the response of the government to the panic of ’08, but the huge injection of liquidity seems likely to prove itself as the right response to unique, panic-driven conditions. If this does turn out to be the right antidote to a rare but recurring illness, conservatives should not hesitate to say so and then build a primer on when and where it ought to be deployed so as to protect against its overuse in the future.


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