Interest Rates, Housing Market and The Economy

We have been on a crazy ride with the housing market, fluctuating interest rates and the economy.

S&P/ Case-Shiller

• Home price index has dropped 2.5% compared with last year’s index

• End of 2008, home prices had fallen 18.2%, compared to 2007

• Increase of 0.3% in home prices in December and November

• Housing prices fell for five of the 20 markets the S&P/Case-Shiller reports on

• There was no change for one of the areas and the other 14 areas saw an increase in prices

The economist, Shiller, who started the S&P/Case-Shiller index with Case and has been following the housing market intensely since 1987, stated that this is the greatest turnaround he has seen.

• Home prices dropped 11% the first six months up until April 2009, and then began to increase 5% for the rest of the year.

• Federal aid has been the main reason for the survival of the real estate market and immensely supported those with delinquent mortgages keep their homes.

Underwater mortgages are growing

• At the end of 2009, 11.3 million homeowners owed more on their mortgage than what the home is really worth.

• During the third quarter the amount was 10.7 million homeowners, this is a 5.6% increase in less than a few months.

Interest rates

Bernanke, the Fed chairman has proposed that he will keep the main interest rate extremely low (near zero) for a long time in order to assist in strengthening the economy during these tough times. Choosing the best time to return interest rates back to former rates, will be a decision that needs great amount of attention. Increasing the interest rate too soon can negatively impact the economic growth, while increasing rates too soon might increase chances of inflation.

Bernanke did not provide the public with even an approximate date of when this increase would take place. The increase will signify that the economy is gradually climbing its way out of these difficult times.