Why monetary policy can’t revive housing

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In past recessions, the housing and mortgage sector, stimulated by the lower interest rates generated by an easier monetary policy, was a source of strength that led the economy out of the recession. Not this time.Despite the fact that the easing of monetary policy has been more aggressive than in any prior recession, and included unprecedented purchases of mortgage-backed securities by the Federal Reserve, the spark has fallen on wet grass. Sales of new and existing homes are lower today than at any time in the last decade. House prices have not rebounded as expected. The volume of mortgage refinances has fallen far short of predictions based on past relationships. Why has monetary easing failed to do the job this time? In a recent article, I pointed out that the interest rates that mortgage borrowers actually pay have not declined as much as published rate series suggest because so few borrowers qualify for the lowest rates. Published rate series have a downward bias beca...