The housing market is mounting a solid recovery, right? I
sure would like to believe that.
The Case-Shiller index report from earlier this week
showed that home prices across the country spent yet another
month climbing out of the pit, notching a 1% month-over-month
increase. While this compares poorly with the 11.3%
year-over-year drop, it's a sign that prices are moving in
the right direction.
This is good news, no? Sure it is, but there are a number
of behind-the-scenes factors that have been propping up
buying, and we can't expect these to stick around
forever.
Free money
"Psst. Thinking about buying a house for the first
time? Here's $8,000 to help you make up your mind."
That welcome mat has greeted first-time homebuyers ever
since the government introduced its much-ballyhooed
first-time homebuyer tax credit. The idea is that by offering
some government cheese, homebuyers will be more inclined to
help gobble up the massive inventory of unsold homes. The
approach is nothing new, consumer products companies offer
rebates all the time to entice buyers to pony up for their
products.
But the question is how long Uncle Sam can keep up this
handout. As my fellow Fool Morgan Housel pointed out earlier
this week,
the country's national debtis no joke and programs like
this only stoke that fire.
The tax credit is set to expire at the end of November,
but the mere fact that lawmakers are diligently working to
extend it shows how much concern there is that pulling back
this incentive will put the market back in the doldrums.
Close to free money
Mortgages may not be free money right now, but they're
as close to free money as they have been in a long, long time
-- if not ever. Bankrate.com lists 30-year fixed mortgage
rates at a mere 5.2%. How does that stack up historically?
Let's take a look-see.
Year
30-Year Fixed Mortgage Rate
1985
11.1%
1990
9.8%
1995
7.5%
2000
7.6%
2005
6.4%
Today
5.2%
Source: HSH Associates and
Bankrate.com.
Continued... |