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I’ve about had it with how
giddy a large portion of the U.S. population has become about rising home
prices.
Don’t get me wrong, when
first thinking about this, I was about as happy as anyone else to learn that
property values are now rising sharply again since, after renting for six
years, my wife and I finally bought a house about two years ago. So, we stand
to benefit as much as anyone else.
But, when you look at
what’s driving home prices higher and how unnatural and unsustainable
those factors are, suddenly the headlines sound more ominous than optimistic.
The glee of Diane Sawyer and
David Muir was nearly uncontrollable on ABC News last night as they detailed
the latest findings from Corelogic showing that
home prices rose by over 6 percent from a year ago.
This video
is the closest that I could find at ABC News, but you get the idea.
This LA Times report
detailed the findings of a UCLA Anderson Forecast study that indicated the “housing
market is becoming the leading source of strength for the long-sluggish
American economic recovery“.
On the surface, this sounds like
a good thing, but not when you examine what’s driving home prices.
Yes, low inventory is a big
factor behind the home price surge as the flood of foreclosures has slowed to
a trickle while strong investor demand and growing confidence amongst
American consumers have surely tipped the scales in favor of higher prices.
But, it is today’s freakishly low interest rates – engineered by
the Federal Reserve – that have clearly played the biggest role in
pushing home prices higher, simply because most people buy a house based on
the monthly mortgage payment, not the purchase price.
And when you see the impact
record low rates have on purchase prices, you might be as concerned as I am.
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