Sacramento, CA, September 28, 2013 --(PR.com
)-- Housing Sacramento Magazine’s (HSM) Federal Reserve Chairmen Ben Bernanke’s impact on the affordability of homes cannot be denied. Chairman Bernanke’s ability to keep mortgage rates low for a long time made it possible for more Americans to buy a more valuable home with the same income. As the interest rate increases, the same income will buy a less valuable home.
The Federal Reserve has three main tools that influence the housing market. To be clear, housing is only one of the sectors of the economy that is being influenced by Fed policy. And it is not the main target of many of the Fed’s decisions.
The first tool the Federal Reserve uses that impacts the housing market is its ability to “print” money. The Fed controls the money supply of the USA.
Housing is effected by this Fed action. The printing of money should create inflation at some point. This means housing prices will increase. This can make houses unaffordable for some individuals. And it can create home equity for home owners. This is a good illustration of many of the Fed’s actions. It is good for some and bad for others.
Under Chairman of the Board of Governors of the Federal Reserve System, Ben Bernanke has done at least 4 Quantitative Easing programs. In the current QE program, the Fed is buying $40 billion worth of agency mortgage-backed securities and $45 billion worth of long-term Treasury bonds per month for a combined $85 billion of stimulus per month.
So when the Federal Reserve buys these Mortgage-backed securities the money flows back into the institutions that will make more funds available for new mortgages. If no one buys Mortgage-backed securities, then very little new funds enter the mortgage lender pool of money and very few new mortgages are made. Since most people need a mortgage to buy a home, very few homes sell.
The third way Fed policies impact the housing market is interest rates. The Fed plays with the interest rate in many ways. According to the Fed, the discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured.
Will chairman Ben Bernanke’s legacy building force him to make imprudent decisions? Does his desire to return to normal Fed policy before he leaves the Fed move him to accelerate a decision that should be played out over a longer time?
Home owners and want-to-be home owners are at the mercy or wisdom of Chairmen Bernanke’s final few decisions. The home is the focus of many American’s quality of life. In Chairmen Bernanke’s mandate of Fed policy it is a small part of the puzzle. How this plays out will see if housing is a pawn in the larger economic game, or if it is given a more important part of the economy because of its significance to every day Americans.
Read full report at Housing Sacramento Magazine housingsacramento.com/magazine/ben-bernanke