Housing Policy

Experts Fret That Low Rates Are Fueling a New Housing Bubble

Never doubt the ability of government to repeat a mistake


Astonishingly low mortgage rates, which the Federal Reserve has driven down in the hopes of stimulating borrowing and goosing the economy, have given qualified purchasers more buying power. A 1 percent decline in mortgage rates increases buying power by about 10 percent.

But some observers, like Zillow Chief Economist Stan Humphries, warn that when mortgage rates inevitably rebound, home price appreciation could slow or even reverse. That could leave buyers who qualify for loans with only minimal down payment requirements—like FHA and VA mortgages—underwater.

Many brokers and agents say they'd rather not see another boom-bust cycle, and advise their clients to enter bidding wars with caution. Even though agents might worry about overvalued homes, that's not stopping buyers from bidding up prices, a phenomenon happening in markets with tight inventories across the U.S. 

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  1. “That could leave buyers who qualify for loans with only minimal down payment requirements — like FHA and VA mortgages — underwater.”

    Nope. Never happened, never will. Uh, well…

  2. Ultimately, there will be more housing bubbles until the government stops pushing the idea that people who are actuarially unlikely to pay back their loans should get loans because they belong to privileged populations. Nobody on the Left and damn few on the Right is/are ready to bite into that bitter pill.

    In the 19th Century, every time the ‘free market’ did something unusually stupid, it was a good bet that there was some swine like Jay Gould in the back of it somewhere. The ascendancy of well meaning Progressive twits was a natural reaction to this and other abuses. Consequently the 20th Century and (so far) the 21st have seen a pattern whereby any time the ‘free market’ does something unusually stupid, there is almost certainly some government program or regulation in back of it somewhere.

  3. It’s hard to tell which bubble is bigger – housing or the dollar.

    My impression is that housing prices are responding to foreigners dumping their dollars to get something concrete in exchange for them.

    That seems to be what the article says as well.

    “What’s different this time around, some say, is that loans aren’t as easy to come by. So no matter how overexcited buyers get, banks will curb their enthusiasm. Many of those who are snatching up the priciest homes can afford to invest considerable sums of their own money.”

  4. Good post. The interest rates and fees are all determined based upon home value and what loan you decide to go with. I know a lender that is very competitive in regards to rates and fees.


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