The Federal Reserve has done everything in its power to get the housing market back on its feet. With record low mortgage rates, The Fed was hoping that the path to recovery would be faster and smoother than it has been so far. Here are some of the reasons that The Fed’s housing policy isn’t working.
1. Cancellations Have Increased
Cancellations of home purchases have accelerated in the second half of 2011. While the reasons are shown in this chart, “other problems” is a big component of the cancellations. This includes frustrations with the delays in the process created by regulatory rules (FDIC) and credit tightening by Fannie Mae, Freddie Mac and the FHA. So, even if a borrower technically qualifies for a mortgage at the more stringent standards, they may still end up walking away from the contract.
2. Housing Prices Continue to Decline
Housing prices continue to fall despite the Fed’s stimulus in terms of lower mortgage rates. It is difficult to generate enthusiasm with borrowers (or lenders!) with continued house price declines.