Report Warns that Home Prices May Fall as Rates Rise

By February 24, 2014Economics, News

Verado 2The Federal Reserve Board’s decision to end “quantitative easing” may lead to higher new home prices. If incomes don’t rise, it could even create a second housing bubble, according to a report by Sandler O’Neill + Partners, an investment banking firm based in New York.

The report notes that home prices have advanced faster than incomes, breaking out of their historial band. “The last time this happened regulators and politicians ignored the warnings, asserting a ‘new paradigm’ supporting home ownership as interest rates and down payments declined.”

The report notes that keeping interest rates low has artificially raised home prices. The Federal Reserve Board, as part of its Comprehensive Capital Analysis and Review, is analyzing the potential impact of a 10 percent collapse in home prices over the next year and a half.

About Boyce Thompson

Boyce Thompson, the author of The New New Home, is a writer and editor who has spent more than 30 years covering the housing market. Thompson began his career as a writer for publications such as The Washington Post, Governing, Practical Homeowner, Venture, and Changing Times, the precursor to the Kiplinger Letter.