Inflationary pressure on housing prices; Lawrence Yun

An article at CNNMoney today claims that the leading home price index rose in July. But this trend may be only temporary according to the chief economist for the National Association of Realtors:

Yun points out that there will be another foreclosure spike over the next six to 12 months as the terms of option ARMs and interest-only mortgages reset, raising monthly payments for many borrowers and pushing some into delinquency. Foreclosed homes will continue to come back onto the market, padding supplies and dampening prices.

Lawrence Yun - National Association of Realtors
















The downward tendency caused by foreclosure activity is being countered by the economic stimulus package passed in Washington in February. With hundreds of billions of new dollars being injected into the economy, the prices of all products will increase. The $8,000.00 first time homebuyers' credit adds to upward pressure on real estate prices:

The other major uncertainty is over the first time homebuyers' tax credit that currently gives back up to $8,000 to taxpayers who buy before Dec. 1 and who have not owned a home within the past three years.

An AP report today confirmed the potential inflationary pressures on the economy as a whole:

To prevent inflation from taking off, the Federal Reserve will need to start boosting interest rates quickly and aggressively once the economy is back on firmer footing, Fed officials warned Tuesday.

Any such action by the Federal Reserve may curb inflation, but will curtail loan activity as interest rates rise.

Long term price trends will depend on whether the FED's next rate hike and the next wave of foreclosures will take effect before the "stimulus" money has a chance to generate inflation.

See Bubble Meter for more information.

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