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April 20, 2014

The Real Force Behind the Rise in Home Prices?

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The Real Force Behind the Rise in Home Prices?

One of the main culprits driving the rise in home prices: The Federal Reserve, says Jonathan Miller, president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm. 

At a time when unemployment is high, lending standards are tight, and the overall economy is still sluggish, many have asked, “How has housing been able to still rebound?” 

Record low mortgage rates are helping to boost home prices, says Miller. The Fed has been buying up mortgage-backed securities to keep mortgage rates hovering at record lows. 

The record-low rates are allowing home buyers to purchase a home that is 50 percent more expensive than they otherwise would have been able to afford compared to average mortgage rates for the past 20 years, according to Tim Iacono of Iacono Research. 

The housing market started to mend in 2012 — making it the “most successful sector of the economy this year,” according to a recent TIME magazine article. Home sales grew, foreclosures fell, and housing prices started to rise this year. 

“After years of falling home values, the data clearly showed that the bleeding stopped somewhere in the first part of 2012 and that home prices have actually begun to slowly rise since then,” writes reporter Christopher Matthews. 

As home prices continue to rise, some analysts expect lenders to ease up and be more willing to lend, which could provide another boost to home prices. Higher home prices also will likely give consumers confidence to spend more money, which can help give a boost to the overall economy too. 

Source: “The Great Housing Rebound of 2012: How the Fed Helped Sellers Beat the Odds,” TIME (Dec. 27, 2012)