AZ Business Magazine | AZBigMedia
The United States housing market faces its biggest threat in more than a decade, and whether home prices can withstand the new coronavirus pandemic largely depends on an effective stimulus package, according to Ken H. Johnson, Ph.D., a real estate economist in Florida Atlantic University’s College of Business.
President Trump recently signed a historic $2 trillion stimulus to boost a battered U.S. economy, and getting the aid exactly right is the key to avoiding the first sustained setback to home prices since the end of the housing boom in 2006, according to Johnson.
“If the stimulus package ends up being more than we need, this will almost certainly trigger a non-trivial amount of inflation in the economy, which will increase mortgage rates, which, in turn, will place downward pressure on housing prices,” Johnson said. “If the stimulus is not sufficient enough to hold down effective unemployment and it increases the likelihood of mortgage default, mortgage rates will rise and put downward pressure on housing prices. Only if the stimulus is just right will increasing inflation and higher unemployment be held in check.”
Fixed rates for 30-year mortgages rose from 3.29 percent on March 5 to 3.65 percent on March 19 before moving down to 3.5 percent last week as the stimulus gained momentum. The higher rates are an indication that investors are factoring in inflation and the higher likelihood of default, though the recent downward trend suggests that it was the threat of rising default probabilities that was having the bigger impact on mortgage rates, according to Johnson.
