Tuesday, March 30, 2021

Federal Reserve and home prices

Federal Reserve under fire as home prices soar  The following quotes are from this CNBC article.

The Federal Reserve is one of the largest, if not the largest, source of money for getting a home mortgage. "It now owns more than a third of the MBS market."

"Home prices nationally in January rose 11.2% year over year, according to the latest S&P CoreLogic Case-Shiller Index. That is the largest annual gain in nearly 15 years."

"Mortgage rates loosely follow the yield on the 10-year Treasury note, which fell dramatically during the pandemic. ... Mortgage rates are [as far below] 10-year Treasury yields as they have been for the past decade."

So rather than raise mortgage interest rates in step with the 10-year Treasury yield, the Fed has kept rates low, which has fueled demand for house buyers and thus higher house prices. A lower interest rate implies a lower monthly payment, which permits borrowing more, which often means paying more for a house. 

My personal experience agrees with higher prices for houses during the past year or so. Zillow.com publishes z-estimates of home prices on its website. The z-estimate of our house has risen about 24% since Jan 2020. Luckily for us, we got a contract to sell it for more than the asking price. We are buying a brand new house for which the builder probably set the price months ago. So our timing seems good and/or lucky.

No comments:

Post a Comment