Is There a Housing Recovery Afoot?
Is There Really a Housing Recovery Afoot?
We all want to believe that greener pastures are ahead of us but I just read a story in the Daily Real Estate News that gives a whole new look at the current trend of bliss and happiness in the housing arena. The article was quoting from a Time article that questioned whether the good news we are hearing is an illusion created by the Federal Reserve or in fact a solid economic recovery.
As you may or may not know the Federal Reserve is artificially keeping interest rates lower than when Adam & Eve first went mortgage shopping. They can just print money and so they are buying Mortgage Backed Securities at an unrealistic feverish pace. This certainly is good in the short term but could have some devastating results when the “you know what” hits the fan or when the chickens come to roost if you don’t like the effect of the first analogy.
Bernanke has declared that he will keep rates at this historic low until 2014. I know this all seems way too confusing but the article explained it in a way that is easy to understand and so I will repeat the way the article put it into easier to understand terms.
The Time article quotes Tim Iacano of Iacano Research putting the cause of the mini-recovery at the feet of the Fed. Because of the low rates the Fed is causing, the buying power of a homebuyer is dramatically increased by unnatural forces. It’s not a normal supply and demand if you will. The “market” is not in play.
For example he points out that if you purchased a house worth $280,000 with a 3.3 percent mortgage the monthly payments would be around $1,100 per month.
He then went on to analyze what would happen in the same scenario if rates were “normal”:
“Even if mortgage rates moved back up to their 20-year average rate of 6.5 percent (what many thought were simply unbelievable rates when they first dropped that low last decade), that same $1,100 mortgage payment would finance a home purchase of just $193,000, not the current $279,000,” Iacano points out. “The difference between these two prices is nearly 50 percent!”
The comparison is amazing when you really think about it. It obviously means NOW is the time to buy but think of what happens should inflation come back in full force. It also means the current talk of recovery is not based on solid ground in my humble opinion but an artificial support system that must come to an end at some point.
Recent estimates are that there currently are over 10 million mortgages under water in the United States and over 1 million that have gone delinquent. I think there is more pain to come in the housing market.
If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation. You can call me at 916.442.6400 or send me an email at email@example.com or just visit my website www.upsidedownca.com.
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