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Slow U.S. home sales should rise if house prices do: Fed study

By Ann Saphir

SAN FRANCISCO (Reuters) - U.S. home sales will likely pick up if house prices continue to rise, according to a study published Monday by the San Francisco Federal Reserve Bank.

That's because the current sluggishness of home sales is most likely due to homeowners optimistically holding out for better sale prices, the study suggested.

The Fed is currently buying $85 billion of Treasuries and mortgage-backed securities each month to lower borrowing costs and encourage hiring and investment.

Even some Fed officials who oppose the bond-buying program have said that it has been effective in boosting the housing market. But a rise in mortgage rates since the summer has dampened that progress.

U.S. home resales fell in September and prices rose at their slowest pace in five months, a report showed Monday, the latest signs higher mortgage rates were taking some edge off the housing market recovery.

But Monday's paper from the San Francisco Fed suggests that if house prices do continue to rise, more homeowners may decide to list their homes for sale, an important step toward the health of the housing recovery.

"If (homeowners) observe prices going up, they may want to wait and gamble that the increases will continue, allowing them to sell later at a higher price," William Hedberg, a San Francisco Fed research associate, and John Krainer, a senior economist at the regional Fed, wrote in the latest Economic Letter published by the bank. "In the longer run, the link between the level of house prices and for-sale inventories is strong. If prices continue to rise, inventories for sale should eventually rise too."

(Reporting by Ann Saphir; Editing by James Dalgleish)

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