Post by unlawflcombatnt on Dec 6, 2012 12:59:45 GMT -6
from iaconoresearch.com via Patrick.net
How Fed Policy Distorts Home Prices
By Tim
12/05/2012
"I’ve about had it with how giddy a large portion of the U.S. population has become about rising home prices.
Don’t get me wrong, when first thinking about this, I was about as happy as anyone else to learn that property values are now rising sharply again since, after renting for six years, my wife and I finally bought a house about two years ago. So, we stand to benefit as much as anyone else.
But, when you look at what’s driving home prices higher and how unnatural and unsustainable those factors are, suddenly the headlines sound more ominous than optimistic.
The glee of Diane Sawyer and David Muir was nearly uncontrollable on ABC News last night as they detailed the latest findings from Corelogic showing that home prices rose by over 6 percent from a year ago.
This video is the closest that I could find at ABC News, but you get the idea.
This LA Times report detailed the findings of a UCLA Anderson Forecast study that indicated the “housing market is becoming the leading source of strength for the long-sluggish American economic recovery“.
On the surface, this sounds like a good thing, but not when you examine what’s driving home prices.
Yes, low inventory is a big factor behind the home price surge as the flood of foreclosures has slowed to a trickle while strong investor demand and growing confidence amongst American consumers have surely tipped the scales in favor of higher prices. But, it is today’s freakishly low interest rates – engineered by the Federal Reserve – that have clearly played the biggest role in pushing home prices higher, simply because most people buy a house based on the monthly mortgage payment, not the purchase price.
And when you see the impact record low rates have on purchase prices, you might be as concerned as I am.
I never thought I’d see the day when you could get a 30-year fixed rate loan at just 3.31 percent, but that was the case last week according to Freddie Mac’s weekly survey of mortgage lenders. While most people probably just shake their head at these astonishingly low numbers, it is homebuyers who are seeing the kind of impact they have on monthly mortgage payments and, as shown below, this effect is profound.
Based on a constant mortgage payment of $1,100 per month (what seemed to be a good national average based on this story and others like it), today’s 3.31 percent 30-year mortgage rate will finance a house at almost double the price that the 40-year average mortgage rate would!...."
How Fed Policy Distorts Home Prices
By Tim
12/05/2012
"I’ve about had it with how giddy a large portion of the U.S. population has become about rising home prices.
Don’t get me wrong, when first thinking about this, I was about as happy as anyone else to learn that property values are now rising sharply again since, after renting for six years, my wife and I finally bought a house about two years ago. So, we stand to benefit as much as anyone else.
But, when you look at what’s driving home prices higher and how unnatural and unsustainable those factors are, suddenly the headlines sound more ominous than optimistic.
The glee of Diane Sawyer and David Muir was nearly uncontrollable on ABC News last night as they detailed the latest findings from Corelogic showing that home prices rose by over 6 percent from a year ago.
This video is the closest that I could find at ABC News, but you get the idea.
This LA Times report detailed the findings of a UCLA Anderson Forecast study that indicated the “housing market is becoming the leading source of strength for the long-sluggish American economic recovery“.
On the surface, this sounds like a good thing, but not when you examine what’s driving home prices.
Yes, low inventory is a big factor behind the home price surge as the flood of foreclosures has slowed to a trickle while strong investor demand and growing confidence amongst American consumers have surely tipped the scales in favor of higher prices. But, it is today’s freakishly low interest rates – engineered by the Federal Reserve – that have clearly played the biggest role in pushing home prices higher, simply because most people buy a house based on the monthly mortgage payment, not the purchase price.
And when you see the impact record low rates have on purchase prices, you might be as concerned as I am.
I never thought I’d see the day when you could get a 30-year fixed rate loan at just 3.31 percent, but that was the case last week according to Freddie Mac’s weekly survey of mortgage lenders. While most people probably just shake their head at these astonishingly low numbers, it is homebuyers who are seeing the kind of impact they have on monthly mortgage payments and, as shown below, this effect is profound.
Based on a constant mortgage payment of $1,100 per month (what seemed to be a good national average based on this story and others like it), today’s 3.31 percent 30-year mortgage rate will finance a house at almost double the price that the 40-year average mortgage rate would!...."