(TheNicheReport) -- It has been a little over one month since the Federal Open Market Committee announced its third round of quantitative easing (QE3) since the extraordinary measures taken by the U.S. government in 2008 to prevent a complete economic cataclysm. It may be a bit hard to believe that the housing sector is already showing signs of improvement as a result of QE3 in such a short time, but that is the view of various economists and analysts as recently reported by the Wall Street Journal.
QE3 consists of several measures designed to stave off inflation and stimulate the economy. One of the most salient measures is the Fed's commitment to purchase mortgage-backed debt securities, instead of the continuous purchase of Treasury debt instruments in previous QE efforts. This mortgage bond purchasing strategy is tied directly to Operation Twist, an effort by the Fed to keep interest rates on home loans as low as possible through 2015.
Positive Housing Data Reports
On October 17th, the U.S. government published positive data with regard to residential construction. New home building operations rose to their highest levels in four years. New building permits increased almost 12 percent. Past stimulus efforts by the Fed are believed to be behind this surge in residential construction, according to statements made to the Wall Street Journal by a Columbia Management economist.
A separate report by investment banking firm BNP Paribas also looked at the burgeoning housing recovery in relation to the Fed's monetary policy of the last five years. That report suggests that the new mortgage bond purchasing program is already having a positive impact on the housing sector.
A Lucky Turn of Events
Not all observers are convinced that QE3 is having an immediate effect on housing. An economist with Bank of America told the Wall Street Journal that the housing market just happens to be recovering at a time when the Fed is directly stimulate it. This is true to an extent since prior QE strategies did not focus directly on the housing market, which began an earnest recovery more than eight months prior to QE3.
Even if the U.S. housing economy recovers on its own, the Fed will probably continue its QE3 purchase of mortgage debt securities for another six months. Even if the job market improves radically thanks to a surge of hiring by major employers, the Fed is unlikely to suddenly stop QE3. Should the housing market recovery continue at a steady pace, however, the presence of a shadow market of pending foreclosures will keep QE3 going for some time.
