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Pro Teck: Low Rates and Monetary Policies Not Stimulating Housing Prices

House and Money Scale

Pro Teck Valuation Services’ Home Value Forecast (HVF) examines why home prices in some markets have been less responsive to low mortgage rates than would have been expected. In the past, it has been widely thought that interest rates decline when the Fed commits to buy mortgage-backed securities (MBS). This month's Lessons from the Data highlight why that phenomenon may be changing and demonstrates the differences between the housing markets in Chicago and Phoenix and why interest rates and other housing factors impact on home prices.

The authors believe there are three reasons why interest rates and monetary policies are not stimulating housing prices as they have been historically:

►Credit scores are lower for many impacted by defaults, employment issues, and other issues.

►Tighter underwriting is making it more difficult for buyers to qualify and has increased the time it takes to secure a loan.

►The investment appeal of housing and the presumption that homes will only go up in price has lost its some of its shine.

The authors determine in Chicago that the average prices per square foot for non-distressed sales may not be responding to the stimulus of low interest rates to the extent they had in the past. In addition, the slow disposition of distressed real estate possibly due to the state’s judicial process for foreclosures could be having an impact on home prices. 

“Affordability is definitely improved when interest rates are lower,” said Norman Miller, professor at the Burnham-Moores Center for Real Estate at the University of San Diego and contributing editor to Home Value Forecast. “But it is very likely that the top tiers of the owner-occupied housing market are the ones benefitting the most from lower mortgage rates as this group has been less affected by credit score downgrades or more restrictive underwriting.”

On the other hand, some markets, such as Phoenix, where low inventories and declining distressed inventories are dispatched even more expediently, seem to be recovering fastest.

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