NAR: New Fed plan will drive down interest rates and help stabilize housing

WASHINGTON – Nov. 26, 2008 – Calling it great news for homebuyers, home sellers and the U.S. economy, the National Association of Realtors® (NAR) praised a plan announced yesterday by the Federal Reserve. Under the plan, the Fed will purchase housing-related debts of Fannie Mae and Freddie Mac, thus freeing up mortgage money on Main Street. The move is one of four points advocated by NAR in a recent Call-to-Action.

“This is one of the key actions we’ve been advocating ever since the Treasury altered its course on how it would use the $700 billion recovery package passed in September,” says NAR President Charles McMillan. “This is great news for homebuyers and sellers, and we applaud the Fed for taking this historic step. Housing recovery is the key to economic recovery in this country and it always has been.”

In a four-point plan submitted to Congress last month, NAR called for the Treasury Department to purchase mortgage-backed securities (MBS) from banks to provide price stabilization for housing. The Fed yesterday said it would purchase mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae for up to $500 billion.

“This will be critical to a housing recovery,” McMillan says.

Lawrence Yun, NAR chief economist, agrees that purchasing the debt obligations of Fannie and Freddie is an important move.

“We commend the Fed decision because it will directly bring down long-term interest rates,” Yun says. “The level of investment should be aggressive enough to bring interest rates down in a meaningful manner. As we’ve seen in past recessions, home sales rise when mortgage interest rates fall.” Yun says that interest rates on 30-year fixed-rate mortgages are too high given the present state of the mortgage market.

“If Fed action brings down mortgage interest rates by even 1 percentage point, it would increase homes sales by 500,000 units,” Yun says. “That should help to draw inventory down and stabilize prices.” Yun says that the U.S. needs higher home sales to absorb inventory and stabilize prices. “Only with stabilization in home prices can we have a healthy housing and economic recovery.”

In its announcement, the Fed said it would purchase up to $100 billion of Fannie, Freddie and Ginnie debt from primary dealers through a series of competitive auctions that will begin next week. Selected asset managers will conduct purchases of up to $500 billion in MBS before year-end. Both the direct obligations and MBS purchases are expected to take place over several quarters.

© 2008 FLORIDA ASSOCIATION OF REALTORS®