Home prices lifted by Fed intervention do not reflect reality

Source: Housingwire
Posted by Kerri Ann Panchuk on September 28, 2012 07:47 AM

Could a real estate recovery be in the works? Are we now at the start of a real estate comeback? These overly optimistic questions pop up in articles across the net, but Robert Bridges of Forbes is willing to ask an unpopular, but insightful, question: How are rising home prices populist in nature, especially when the values are lifted by federal housing policies rather than true consumer sentiment? When the goal is to give everyone a shot at rightful homeownership, especially those 20- to 30-somethings who are saddled with student debt and modest-paying jobs, the market should reflect prices based on what those individuals can afford. In other words, as demand goes one direction in terms of what they will pay, the price of the existing supply is supposed to follow until they cross paths once again. Only then, do we see a natural lift in prices based on consumers catching up and gaining a foothold in the economy. Bridges argues current federal housing policies artificially lift prices, pulling power away from the free market. In turn, rising home prices are considered populist because it helps the seller and owner, but not necessarily the buyer. So in the supply-demand equation, the buyer's situation in the market is often considered last. When federal policies game prices, the buyer is often left out of the equation. "For some time now, demand for houses has been artificially boosted by federal and state tax policies, rising governmental involvement in residential-debt financing, and persistently low interest rates orchestrated by the Federal Reserve," Bridges writes in his article. Bridges sees this as intensifying demand, lifting prices beyond the reach of moderate-income individuals. Bridges suggests current housing policies are more gamed than populist in nature. The real question is whether potential homebuyers have caught on.

URL to original article: http://www.housingwire.com/rewired/argument-against-rising-home-prices

For further information on Fresno Real Estate check: http://www.londonproperties.com