Economics - Home Prices to Recover Further Until Fed Keeps Interest Rate Low
Nov 27, 2012 - With reference to S&P case shiller home price indices, the home prices in both composite 10 and 20 cities indices went up for 6th straight months, that is from March 2012 to Sep 2012. The 20 city composite index for March 2012 is 134.07 and for Sep 2012 is 146.22 which is an increase of 12.15 points or 9.06%.
The mortgage rate from wells fargo for 15 year fixed is: 2.625% and 30 year is: 3.375% as of Nov 28, 2012 7:00 PM Eastern Time. Click on https://www.wellsfargo.com/mortgage/rates/ to see the current rate. Since the interest rate has been relatively at all time low for the last over 3 years, the home prices got a boost. Besides increasing rent in all major cities are encouraging buyers to step in.
Interestingly the new home sales for October is down by 0.3 percent as per denverpost.com. But this is not a surprise. Because buyers are bidding for home but there were not enough homes available in the inventory. Especially for new homes, it is selling on a presale basis meaning the home will be ready only after 3-4 months of time. Construction of New homes require siginificant amount of time and it is not like software which can be copied with no time.
The raw materials and labour cost for the construction workers are going up because of extensive demand compared to the last couple of years. Oveall many factors are supporting the increase of home prices. It is a good time to buy and if you want to sell, you may have to wait for couple of more months.
Once Fed starts increasing the interest rate, may be by end of next year, it will stringly discourage the buyers and we can see some decline in the home prices. But chances are very much that percentage of decline might be much less than the increase we are going to see in the coming months.
Buyers need to proactively to watch market and lock into the property. This is only applicable for US market. However I see a very big collpase of home prices in Indian Real Estate Market.