After the housing bubble popped along with the US economy 7 years ago, we (our parents) got used to seeing "for-sale" signs and housing prices drop lower and lower. However, as the economy gets that much stronger, the housing market is seeing prices rise and stay stable at a constant pace. With the recent numbers from June and July coming out, the prices of homes are indeed getting better, with Las Vegas experiencing the highest increase. We know that the housing market is connected to the economy, but according to recent studies, the house market may be growing independent to the economy. What are your opinions about the stronger housing market, and is it significantly connected to the economical growth?
housing bubble in 2006/7
BBC housing
the economist housing
The economist interactive housing graph
The housing market vs GDP
2 comments:
As someone who's not a big fan of Fed intervention, I don't like how Bernanke & Co. have been artificially lowering interest rates in order to spur "economic growth." If artificial interest rates lead to artificial borrowing, then who's to say that housing prices aren't artificially inflated (again)?
All that's to say that I'm already wary of current housing prices, and that, while I'm glad to see interest rates begin to rise, I'm not sure that now is the best time to jump into the housing market for a few reasons: 1.)If mortgage rates continue to rise and fewer people are able to borrow, then demand for houses should decrease as there will be fewer buyers in the market. If you're not concerned about short term (within the next 15 years) capital appreciation, then this shouldn't be a big deal. 2.)If, for some reason, the Fed sees it fit to continue suppressing interest rates (maybe if we get some weak economic numbers), then you'd might want to try to wait for mortgage rates to fall. The second reason doesn't seem very likely to me, but it's still a possibility that should be considered.
In all likelihood, I do feel as though interest rates will continue to rise and that sooner rather than later is the way to go unless you are trying to make money off of the house, or are confident that the economy will take another tumble.
I think that while the housing market is slowly recovering from the devastation of the bursting of the housing bubble, the housing market is still very weak and volatile.
Living in the Bay Area, especially in the highest paid county in America (http://www.businessinsider.com/san-mateo-highest-paid-county-thanks-to-facebook-2013-7), we have survived relatively unscathed by the devastating effects of the housing market. Because of the diversity and stability of Bay Area enterprises and the relative wealth of this region compared to other parts of the country, the effect of the burst was not felt as harshly though it was certainly noticeable, decreased property values, and hurt numerous families.
Although property values on the rise are a positive indication of recovery, other statistics point to a more bleak picture such as the number of home ownership turnover, (http://www.reuters.com/article/2013/08/28/us-usa-economy-homes-idUSBRE97R0PS20130828), which declined 1.3% in July. Furthermore, summer is generally the season in which the sale of properties is highest, so decreases are likely coming our way in the coming months.
In my opinion, the underlying issue right now is the stringency that banks and financial institutions are exercising in providing loans to American homeowners and families. They are sitting on more capital than ever before, yet they are not lending. Perhaps this is due to the fact that investors are still reeling from the effects of loose lending practices pre-recession, but as borrowing and investing is central to American homeownership and wealth, this is hugely problematic.
Lastly, I agree with Quinn that interest will continue to rise, but I think that it'd be best if rates remain low at least until mid-2014. The American economy is still incredibly weak despite positive numbers in certain areas. While the Bay Area rises out of the recession, much of the country is not quite there yet. With home values somewhat improving but the buying of homes decreasing, this situation is still very volatile, and in my opinion, too volatile to raise interest rates now. We need more time for homeowners to refinance, to acquire low rate loans, and to recover the losses they suffered years ago. By mid 2014, as summer rolls around and home transactions pick up again, I think that'd be a better time to begin raising the rates.
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