Federal Reserve chairman Ben Bernanke said yesterday what I have been saying for several months now, "Affordability is not the issue it was a few years ago" in terms of the housing market. In fact housing affordability, according to data that the NAR collects, is the highest on record going back to 1973.
The reason this is an interesting statement is that the Fed recently agreed to purchase approximately $500 billion in mortgage backed securities in an effort to drive down mortgage rates and ultimately stimulate demand for real estate, it didn't have the intended results. As mortgage rates plunged by nearly a full point, existing homes sales also declined to their lowest level now in nearly 12 years.
What this means is that a housing market recovery can no longer be pinned on increasing "housing affordability" like a lot of the experts have been calling for. Over the past year there was a chorus saying that if home values came down and mortgage rates became more attractive (as if a 6% mortgage rate should be shunned) that demand for real estate would increase, and with the exception of CA, this has not been the case. Housing affordability is no longer the issue. The horse is dead. We need to get off that horse and find another one. It's also not about first time home buyers either.
What this continues to come back to is stimulating investment demand into the housing market by providinig a tax incentive for Americans to invest. Specifically, repealing the Tax Reform Act of 1986 as it pertains to passive loss and income limitations.
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