Fed Policy Helps Drive Housing Prices Higher

Monday, 08 Apr 2013 11:45 AM

By Lisa Barron

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The U.S. housing market is finally on the road to recovery, but rising prices are due largely to the Federal Reserve’s policy of maintaining low interest rates, according to The Wall Street Journal.

Home prices jumped 10 percent in February, during the typically slow winter season, and they are poised to head higher as the spring buying season gets underway, the Journal reported Monday.

Before the housing crisis in 2008, the average rate for a 30-year fixed mortgage was 6.1 percent, and a borrower who qualified for a monthly payment of $1,000 could get a $165,000 mortgage. Now, with that rate at 3.5 percent, the same borrower can get as much as $222,000, roughly a third more.

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If prices keep going up at this pace, “we’re going to have a real affordability problem” once rates move above 6 percent, John Burns, chief executive of a real-estate consulting firm in Irvine, Calif., told the newspaper.

There are, however, other factors affecting the market. New home construction is down and while demand has increased, the supply of available homes is reportedly at 20-year lows, largely because investors have been scooping up foreclosed properties and converting them to rentals.

In addition, there is unlikely to be another housing bubble because home prices are still below average relative to income and lending standards have tightened.

“The recovery is solid,” said Burns, adding “There are pure fundamentals you can point to.”

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