In my opinion, the absolute best course of action, not only for the housing market, but for the overall economy, would be higher interest rates and higher mortgage rates. Higher rates would weed out the “marginally qualified” purchasers who barely have enough cash on hand for the down payment, yet are creating bidding wars because they got approved through the FHA. Once the artificial demand has been eliminated, the free market can then dictate what prices should be.
And the same thing should apply with mortgage rates – the Feds should get the hell out of the “quantitative easing” business, and allow rates to be set based on what the market will bear. Higher rates would bring down prices and make real estate more affordable. Of course, the NAR, as well as builders, wouldn’t be too happy with my suggestion…I suppose thats why they’ve spent so much time and money lobbying the Obama administration in support of his foreclosure agenda to prop up prices.
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It’s not just the NAR and the builders not liking your suggestion. All those marginal buyers won’t like your plan very much either. Unfortunately, those marginal buyers seems to be the majority. Prudent savers are definitely a minority right now. We might benefit from high rates, but I think the majority will scream for lower rate much earlier. It’ll be interesting to see who wins.
