After dropping for three years, home prices appear to be stabilizing. It’s safe to say we’ve reached the point where prices are justified by the fundamentals of the economy and may even represent an undervaluation.
Since the credit crunch hit about two years ago, many lenders have all but abandoned jumbos, which are too big for secondary mortgage market companies Fannie Mae and Freddie Mac to buy for packaging into securities and outside the limit of FHA. Yet with their reluctance, lenders are leaving money on the table.
The Federal Reserve has thus rightly focused on getting the economy moving by taking unprecedented steps to ease the credit crisis. Yet the Federal Reserve’s solution could spark an equally troubling problem.
The federal government came through with real incentives for home buyers when it passed the stimulus package in mid-February, followed a day later with more positive action when the Obama administration released a plan for helping home owners facing foreclosure . But will the administration now take away with one hand what it’s given with the other?
The Federal Reserve in late December took the unprecedented step of lowering its short-term target interest rate essentially to zero. But more important, it made a firm commitment to provide additional support, as needed, to the housing market by continuing to purchase mortgage-backed securities.