In response to macroeconomic weakness, the Federal Reserve generally can lower the target federal funds rate, which would be expected to lower mortgage rates. The combination of lower prices and lower mortgage rates makes home purchase more affordable and helps revive the housing market. Indeed, most recent recoveries have been led by housing.
But for a variety of reasons, these mechanisms are not working fully in today’s economy. When crafting solutions, it is helpful to first identify areas where removing some obstacles might enable these self-correcting mechanisms to operate more productively.