Last week the Fed announced it would once again delay liftoff from its zero interest rate policy. During her press conference, Fed Chair Janet Yellen noted that “[the housing market] remains very depressed.”
Has the Fed missed the housing liftoff? July existing home sales were at a seasonally adjusted annual rate of 5.6 million, the highest level since the end of the peak of the housing bubble in December 2006. Home sales are up 23 percent from July 2012 – just before the Fed’s announcement of its last round of quantitative easing known as QE3 in September 2012. This strength has been more than fully reflected in the home loan market, a market dominated by FHA, Fannie Mae, Freddie Mac, and other government agencies.
The spring home finance market has also been booming.
Agency unit home purchase volume in August is up by double digits over the same months in 2013 and 2014. This boom has been influenced by outsized gains for first-time buyers (FTB): up 26 and 20 percent over 2013 and 2014 respectively. In August, FTB accounted for 57 percent of primary owner-occupied home purchase mortgages with a government guarantee – representing healthy increases from both August 2013 and 2014.
Home prices are seeing a second liftoff – inflation adjusted home prices are up 12.5 percent since September 2012. This should come as no surprise. Research as far back as the 1950s has shown that the liberalization of credit terms creates demand pressure that easily becomes capitalized into higher prices, especially when undertaken in a seller’s market. This is economics 101, pure and simple. Link to continue reading The sooner the Fed gets unstuck, the better.
Also read how the GAO report on mortgage reforms fails to address impact of QM and QRM