Lowering the demands required of down payments by Fannie Mae and Freddie Mac could increase the housing recovery, said Pimco’s Bill Gross.
Consumers already laden with debt would be able to purchase homes if requirements for down payments were less stringent, Gross, co-CEO of Pacific Investment Management Co., told CNBC.
Many potential home buyers lack the necessary cash for a down payment, so a low mortgage rate of 4 percent is not an incentive, Gross said.
“To the extent that you can finance a 3.5 to 4 percent (mortgage) with a 20- or 25-percent down payment, most ... households can't come up with the money. So there needs to be some type of cautionary reduction in terms of down payments,” he said.
High unemployment rates are preventing the housing market from improving, Bloomberg reported.
“The housing market’s recovery has taken a big step back. Potential buyers are content to sit on the sidelines, which is understandable considering we have a near double-digit unemployment rate,” said Ryan Sweet, a senior economist at Moody’s Economy.com.
The stocks of homebuilders KB Home, Lennar and Toll Brothers rose by 3 percent despite news that home sales plunged drastically, CNN reported.
“[It's] a sign that they had priced in the bad news, and this has allowed the rest of the market to come back,” said Peter Boockvar, chief market strategist with Miller Taback & Co.
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