On The Brink Of Another Housing Bubble?

The Federal Reserve’s monetary policy has kept mortgage rates down, lending positive effects on the markets road to recovery. But will it last? Real estate experts who responded to a recent Zillow survey have expressed concern that these policies could lead to another housing bubble.

A minute 4% of survey respondents are not worried about the bubble resulting from the Fed’s monetary policies. Forty-eight percent see the policy as “a little risky,” while the remaining 48% see the policy as “moderate to high risk.” More than 100 people responded to the Zillow survey and all expect home prices to continue to increase this year and over the next few years. The general consensus is that prices will eventually slow in the next year or so.

The average home price is expected to end 5.4% higher than the beginning of the year. The median price would end this year at $165,280, up from $156,800 at the end of 2012.

Stan Humphries, chief economist at Zillow says the accelerated appreciation over the next year is “consistent with a market struggling to satisfy strong demand from buyers attracted by rock-bottom interest rates and improving economic conditions.” He goes on to say that despite interest rates eventually moving up from their current lows, price appreciation must slow or homes will “look very expensive relative to people’s incomes as it gets more costly to finance a home.”

The survey conducted by Zillow also asked respondents whether a down payment should be included in a qualified residential mortgage (QRM). Eighty-one percent of respondents support the idea of a minimum down payment—one-third support a down payment requirement of 20% or more.

Do you think the Fed’s monetary policy is creating false hope for the market’s recovery?