Home Prices Outlook

John McConnin, Esq
Published on March 17, 2016

Home Prices Outlook

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Housing Prices Higher as affordabolity hits Lows

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Janet Yellen signals steady interest rates as home prices soar.

“As a result of the Fed’s muscular interventions, the average interest rate in the U.S. for a 30-year-mortgage dropped from 6.08 percent in mid-2008 to 3.68 percent on March 16.

Despite U.S. inflation-adjusted incomes still being down slightly since 2008, the Fed’s low interest-rate policy basically cut the cost of mortgage payments in half and allowed Americans to qualify to purchase much more expensive homes.

Cheap money may not have created much economic growth, but housing prices, as measured by the S&P/Case-Shiller National Home Price Index, were up 5.4 percent last year and up by 30.1 percent from their early 2012 lows. As of the end of January, average U.S. home prices are only 3.7 percent off their all-time-high in early 2007.

But the ability of homeowners to qualify for more expensive homes has driven up the ratio of home prices to median household income. At the end of 2014, home prices had reached an all-time record ratio of 5.3 times the average U.S. household income. Although official 2015 data is not yet available, the ratio appears to have reached another all-time high of 5.5 times household income.

In comparison, the ratio was only about five times household income at the 2007 peak, and just 4 times income at the prior housing price peaks of 1987 and 2001, according to the St. Louis Federal Reserve Bank.

Many people say that a home is an individual’s best protection against inflation. But withinflation up only 2.2 percent last year, and 17.8 percent since the 2012 low, home prices are jumping twice as fast as inflation.

The Federal Reserve’s ZIRP and QE policies created artificially low interest rates that have been the “secret sauce” that reflated real estate.”

more at link… http://www.breitbart.com/big-government/2016/03/17/potential-housing-crisis-dead-ahead/

The Takeaway

Fed policies are currently a major driver in the entire economy not just the housing market.  If rates were allowed to rise too much not only would home prices retreat but the U.S. economy might take a big hit as well and we don’t even want to contemplate what 7% interest rates would do to the budget deficit.  So should you buy or sell real estate right now.  If I were thinking of selling soon, I might wish to sell this spring while interest rates are low.  Same thing if I were a buyer for my primary residence.  If I am an investor… I would have to know that my investment is very tied to FED policies.

P.S. It seems to be a big shame that the FED did not allow the recession to happen back in 2008 and 09.  Had they let the zombie banks and zombie businesses fail back then, we would most likely have built a firm economic base by now.  New business would be leading the way in the financial sector and everywhere else.  Had the recession turned into a depression, the trillions of dollars spent and lent by the FED and the federal govt bailing out the banks and financial institutions could have been given to U.S citizens directly.

 

 

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Home Prices Outlook
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