Chart Of The Day

Dec 7 2012 @ 5:09pm

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Tim Iacono explains what's driving rising home prices, which are now up 6 percent year-on-year:

While there are clearly other factors involved, it is the Federal Reserve’s asset purchase program that is largely responsible for … freakishly low rates (it is one of their stated policy objectives)…. As shown above, even if mortgage rates moved back up to their 20-year average rate of 6.5 percent (what many thought were simply unbelievable rates when they first dropped that low last decade), that same $1,100 mortgage payment would finance a home purchase of just $193,000, not the current $279,000.

Why sliding interest rates should worry us, he says:

This is starting to sound a lot like those 2005-era stories of people with $50,000 incomes buying $500,000 houses. How you end up there is much different (liar loans and interest-only loans versus super-low mortgage rates), but the underlying instability that this sort of financing creates is not all that different.

(Hat tip: Barry Ritholtz)