Housing prices increase despite lack of demand

Home prices continued to climb in the final three months of 2015 despite cooling demand and declining home sales, according to the most recent quarterly report conducted by the National Association of Realtors (NAR). Metropolitan areas in particular saw higher home prices – median existing single-family home price increase in 81 percent of measured markets. For the entire year of 2015, 89 percent of measured metropolitan areas saw an increase in home prices, up from 83 percent in 2014 and 88 percent in 2013.

While NAR chief economist, Lawrence Yun, attribute the rise in home prices to “inadequate supply”, his assessment may not be entirely accurate. Generally speaking, housing prices should rise because of increased demand, but homes sales fell by 5.4 percent in the final three months of 2015. Home prices may be increasing for a number of reasons, including prolonged suppression of interest rates by the Federal Reserve, the prevalence of FHA loans, or the increased reliance on Fannie Mae and Freddie Mac.

Government intervention in the housing market contributed to the housing bubble and collapse in 2007-08. The percentage of home loans backed by the government is higher now than before the financial crisis – over 60 percent of American mortgage payments are currently owned or guaranteed by the government. While some believe increased housing prices signals an improving economy, it could also be a warning sign of another government caused housing bubble. Whatever the case, real estate agents and potential home buyers would be better off with a stable housing market brought about by less government intervention.

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