A Washington Post blogger, Ezra Klein, caused a minor stir in the blogoshere this past week with a novel, though hardily original, thought. Mr. Klein opined that it would be a good idea if the Federal Reserve announced it would buy huge numbers of mortgage-backed securities with the intent to bring the 30-year fixed-rate mortgage down to mortgage2.5%, and then hold the rate there for one year, “and one year only.” According to Mr. Klein, such a move on the Fed's part would incentive a home-buying spree.

Upon reading Mr. Klein's recommendation, we were immediately reminded of a speech RE/MAX CEO Margaret Kelly gave a couple months ago. In the speech, Ms Kelly basically said the best course of action at this point was to simply leave markets be.

There is always room for improvement, to be sure, but Mr. Klein's recommendation is simply larded with unintended consequences. It would pull future demand forward into the present. Sure, we'd all be super busy in 2013, but what about 2014? After the federal home buyers tax credit expired, sales dropped off a cliff. What's more, buyers would be buying into an artificially inflation market. After the surge ended, prices would fall, meaning anyone who bought during the surge would likely own an asset worth less if it were put on the market post-surge.

More than anything, we'd like to see a more accommodating regulatory environment. As for housing demand, that's coming along and doesn't need any additional stimulus. We think demand would come along even better in a lending environment that accommodated more buyers' needs.

Courtesy of Jessica Regan.

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