After a tumultuous week, the federal government today agreed to stabilize American financial institutions and the country’s economy by spending as much as $700 billion to purchase their troubled real estate assets.

Builders, among others, signaled their relief at the bailout’s approval. “This legislation was absolutely essential to prevent a collapse in our financial system that would have inflicted devastating damage to our nation’s economy,” said Sandy Dunn, the West Virginia builder who is president of the NAHB, who said she hoped “this will set the stage for rebuilding confidence, restoring the availability of credit for businesses and consumers, and reversing the downward spiral in home prices and rising foreclosures that are root causes of today’s financial turmoil.”

Other housing groups also applauded the government’s decision to address the economic situation in this way. “The National Association of Realtors is truly relieved that members of the U.S. House of Representatives, like their counterparts in the Senate, were able to come together in a bipartisan effort to pass the Emergency Economic Stability Act of 2008,” said Richard Gaylord, president of the National Association of Realtors. “As we have been saying, this legislation is critical to stopping the economic turmoil that millions of Americans are facing. Today’s action will go a long way toward ending the current economic crisis crippling the housing and financial markets.”

John Courson, COO of the Mortgage Bankers Association, agreed. "The ongoing credit crunch has severely impacted the ability of individuals and businesses of all sizes to borrow, and has threatened to slow down the entire U.S. economy. … This will enable financial institutions to offer credit so individuals can purchase homes and other items and businesses can continue to operate and grow."

Thanks to President George W. Bush’s signature this afternoon, the bill approved today by the House of Representatives has become law. However, it may take several weeks to get the $700 billion initiative rolling.

“We would expect the Treasury to start ramping up the size of auctions over the next several weeks to fund the program – with an initial target of perhaps $100 to $200 billion in the program account by mid-November, but the agency is not expected to be staffed and up and running for perhaps four to six weeks-- actual purchases of securities are not likely until perhaps the second half of November,” suggested Brian Bethune, chief U.S. financial economist for Global Insight in Lexington, Mass. "However, mortgage-backed securities prices should rise immediately in secondary markets in anticipation of these purchases, and that should provide some relief fairly quickly for severely stressed capital positions in the banking system.”

Still, Bethune cautioned that this program, while critically important, will not turn the U.S. economy around overnight. “It would be naïve to assume that these measures alone will be a panacea for the economy. The economy is in the midst of a recession, and the passage of the [financial rescue] legislation, in conjunction with anticipated rate cuts from the Federal Reserve only will provide some scaffolding under the financial markets over the next few months to prevent a more serious meltdown,” he said. “We do not expect to feel a palpable improvement in general credit conditions until perhaps the end of 2008 or early 2009. Nevertheless, perhaps these latest policy developments will represent the first glimmer of hope that there may be some light at the end of the long tunnel for the banking system and the economy.”

Alison Rice is senior editor, online, at BUILDER magazine.