As the Federal Reserve finally pulls out its continued support to the housing markets, the sector is poised to witness major changes in the near future.
While the announcement by the Fed to stop further purchases of mortgage loans to shore up the sector is not exactly a bolt out of the blue, the actual event is still likely to leave a trace of uncertainty and fear in the minds of investors. However, so far the market has not shown any drastic changes following the news of the Fed pullout.
January statistics show a slight improvement in home values – evidence that the segment could on a rebound. However, some analysts fear that the improvement may be temporary. Home values have seen an increase in January when compared with the previous month according to the Standard & Poor’s/Case-Shiller home price index.
The improvement was the eighth consecutive increase recorded showing a steady enhancement in home values. The index tracks real estate in 20 cities to arrive at the statistical conclusions. Los Angeles, San Diego and Washington were all among cities that recorded a growth in home prices when seasonally adjusted prices are taken into account. Some economists see this trend as a sound beginning for an expected turnaround.
In spite of this data, some analysts fear that it is too early to consider the housing sector out of trouble. The improvement may be hampered by many external factors, they say. Also, the data from the index includes November figures, which were disproportionately high when compared with January prices when values actually dipped slightly. The index may not actually indicate the current price trend. To illustrate their point, analysts point out falling house prices in Las Vegas, Charlotte, and Seattle, when calculated on a non seasonal basis.
These contradictory indications and lack of consensus show that housing segment is yet to stabilize and any disturbance may well set off another crash. In view of these facts, the Fed withdrawal, which is expected to put some pressure on mortgage rates, may increase volatility in an already unstable market, and keep new investors away.
The first time home buyer credit has also failed to be successful in its second run after the Obama administration extended the deadline to April 30. Experts believe that almost everyone who could avail the credit did so before the first deadline, leaving only a handful of people qualifying during the extension period.
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