That migration may mean good things for the nation’s architects. Bernanke’s new policy consists of three key pillars. First, the Fed announced a new asset-purchase plan, which will buy $40 billion in mortgage-backed securities per month in the hopes of finally breaking the mortgage-market logjam that’s made it so difficult to get loans since the financial crisis hit. This strategy is novel in that the Fed didn’t pre-announce a total purchase-plan size; instead, buying will be ongoing. That’s important, as it means that the default position is more support for the economy. Second, the Fed extended out its estimate for when rates would begin rising again, to mid-2015. And third, the Fed tweaked the language of its statement to suggest that while unemployment remained high, it would not rush to rein in inflation should it rise above the 2 percent level.
The upshot of the move is likely to be a burst of activity for the housing sector. The housing engine has been revving up in recent months. The inventory of existing homes for sale has fallen rapidly over the past year and is now close to “normal” levels. Falling inventory has been nudging up rents and that, at long last, seems to have led to rising home prices. The Case-Shiller index of national home prices rose, year-on-year, in the second quarter, perhaps representing an end to five and a half years of almost uninterrupted decline. Rising prices and rents are encouraging new construction—housing starts have risen 57 percent from the lowest recession rate—but construction levels remain well below normal, meaning that there is an awful lot of room for housing activity to expand.
The Fed’s action should reinforce all of this. Rising prices may already be encouraging gun-shy banks to venture more aggressively into mortgage lending, as rising home values sharply reduce the danger of a loan falling into default and a house into foreclosure. New MBS purchases should contribute to rising bank confidence by providing a ready market for loans. The rate commitment will provide some assurance to builders that the Fed won’t jerk the rug out from under them just as good times get rolling again, just as higher tolerance for inflation should allow the rent and price increases that are encouraging builders to get moving again to run farther than they otherwise would.