FOMC’s Housing Outlook Remains Weak

Regulators’ outlook on the economy and the housing market recovery is bleak across the board, according to statements released Wednesday. The Federal Open Market Committee saw “that credit markets still were not working well,” according to the quarterly Summary of Economic Projections along that was released Wednesday along with the minutes from the Jan. 27 through 28 meeting and Jan. 16 conference call. The FOMC said the Federal Reserve will have to scale back liquidity programs and reduce the size of its balance sheet to avoid increased inflation when the economy shows signs of recovering. “Many participants noted some risk of a protracted period of excessively low inflation, especially if inflation expectations were to move down in response to lower actual inflation and increasing economic slack, and a few even saw some risk of deflation,” according to a press release on the meeting. “Participants saw no indication that the housing sector was beginning to stabilize,” the FOMC said. “Though sales of existing homes appeared to have flattened out, a large fraction of those transactions seemed to have resulted from foreclosures or other forced sales; moreover, new home sales, housing starts, and permits all continued to decline steeply. Lower house prices and mortgage rates had increased housing affordability, but concerns that house prices may fall further appeared to be holding back potential buyers.” Despite the weak economic outlook, FOMC members’ long-run projections saw a 2.5 to 2.7 percent growth in real gross domestic output, 4.8 to 5 percent unemployment and inflation of 1.7 to 2 percent. The FOMC unsurprisingly kept the federal funds rate at a range of zero to 0.25 percent. Read the FOMC’s minutes. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.