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Some at Fed See a Need to Do More for Housing
By DAVID STREITFELD and JACK HEALY

Despite extensive government intervention in the housing market, some policy makers at the Federal Reserve are worried that even more might need to be done.

The minutes of the Federal Open Market Committee’s mid-December meeting, released on Wednesday, reflected a lingering wariness about the strength of the recovery in light of high unemployment and substantial slack in the economy.

At the same time, unease is growing that a tentative comeback in the housing market could fall apart as a tax credit for home buyers expires and the Fed’s program to hold down mortgage rates comes to a close.

Concern over housing deepened Wednesday with the release of new data showing that long-term interest rates were rising rapidly from their historic lows, while mortgage applications to purchase houses were falling. Applications are now at their lowest level in 12 years.

Other signs of stress in real estate have become apparent in the last few weeks, although most economists say any downturn will be relatively mild.

If they are wrong, and the modest pace of economic growth slows or mortgage markets significantly deteriorate, “a few members” of the Federal Open Market Committee believe that “more policy stimulus” may be desirable, the Fed minutes said.

But one member of the panel took an opposite view, saying that the “quantity of planned asset purchases could be scaled back” because of continuing improvements in the economy.

Noting the contrast between “a few” and “one,” Michael Gregory, senior economist at BMO Capital Markets, projected a shift in policy.

“There emerged a definite skew towards more accommodation,” Mr. Gregory wrote in a research note.

The Fed has been buying $1.25 trillion of mortgage-backed assets to ease lending markets and keep longer-term rates low — a program that is winding down and scheduled to end by March 31.

The program was successful for much of last year, pushing mortgage rates below 5 percent, to levels not seen since the early 1950s. Many economists say the end of the program will push rates back up from a half point to a full point, adding to the cost of a house and diminishing the pool of buyers.

Emergency measures to stabilize short-term lending and other markets are also being scaled back and ended as the economy pulls itself out of a deep recession. The tax credit for home buyers, extended once by Congress, is scheduled to end on April 30.

The president of the Federal Reserve Bank of St. Louis, James Bullard, said in late November that the Fed should continue purchasing the securities.

“I have advocated to keep the asset-purchase program open but at a very low level, and wait and see what happens,” Mr. Bullard told Dow Jones Newswires. Mr. Bullard becomes a member of the Federal Open Market Committee this year. That committee is the Fed’s main policymaking body.

His view was quickly endorsed by the nation’s real estate agents, a potent lobbying force who were successful in getting the first-time buyer’s tax credit extended and broadened.

“The March deadline is artificial and should not hold firm,” said Lawrence Yun, chief economist for the National Association of Realtors. “Maybe we’ll need this stimulus until May or autumn.”

The Mortgage Bankers Association said rates rose in the last two weeks of December, to 5.18 percent from 4.92 percent. Meanwhile, applications for purchase mortgages fell.

Mortgage applications offer an imperfect glimpse into the state of the housing market. If many houses are being bought by speculators with cash — as is the case now — that activity is not reflected in the figures.

The numbers also tend to bounce around from week to week.

Nevertheless, the trend is sharply down. Applications are more than 25 percent below their level at the end of 2008, the banking group said.

The Fed left its interest rate target unchanged at levels near zero at its meeting, and the minutes indicated that most members believed inflation was not an imminent threat to the economy.

“They’re very anxious not to torpedo the stabilization we’ve seen in the housing market, but they don’t want inflation expectations to get out of hand,” said John Canally, an economist at LPL Financial.

“They’re walking a pretty narrow tightrope this year,” he said.

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