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Can the Fed spur homebuyers?

By Judy Martel · Bankrate.com
Wednesday, June 20, 2012
Posted: 9 pm ET

In a move to lower the cost to borrow, the Federal Reserve has extended its Operation Twist program and will buy $267 billion in long-term Treasury bonds and notes while selling short-term Treasurys.

The Fed is hoping the extension will spur spending and borrowing for long-term investments like mortgages, but with rates already at historic lows, will this have a real impact for prospective homeowners? Home sales have remained sluggish as the economy has struggled to recover and Bankrate Senior Financial Analyst Greg McBride says that the impact of the Fed's latest action will be marginal.

"The extension of Operation Twist is largely a symbolic move, as the main drivers of long-term interest rates currently are the European debt crisis and concerns about the global economy," he notes. "That being said, the Fed did not have the luxury of letting Operation Twist sunset at the end of the month."

In the long run, a recovering economy and jobs market will have the most impact on the housing market, McBride says. "Low mortgage rates are facilitating refinancing, which is putting more money in people’s pockets that they are not getting in their paychecks. But low mortgage rates alone are not going to revive the housing market as people will be reluctant to buy homes when their incomes are stagnating and they remain concerned about the economy."

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