The housing boom has seen its last days, U.S. Federal Reserve Chairman Alan Greenspan said today. The Fed expects home sales to plateau in the months ahead from current highs and home prices to stop rising.
“We perceive that the very strong expansion in new and existing home sales is now flattening out, and the really quite unexpected boom in home sales over recent years is unlikely to be continued,” Greenspan said today during a Senate Banking Committee hearing, according to an AFP report.
“Our forecast is generally flat, not in price, but in aggregate volumes. Where prices go, I’m not sure, but I could be quite surprised if they showed continued acceleration on the up side,” he added.
The biggest driver in booming home sales of the past few years has been record low interest rates. The Fed’s monetary policy has contributed to low home loan borrowing rates by keeping the federal funds rate at historic lows. The federal funds rate, which banks charge each other overnight, is at a 46-year low of 1 percent. While a change in the Fed’s target rate has no direct effect on other rates, it could have an indirect effect on other rates, such as mortgages.
Greenspan’s testimony today was delivered during the confirmation hearing for his fifth term as Federal Reserve chairman.
Experts expect the Fed later this month will begin to raise the target borrowing rate at is next monetary policy meeting. How aggressive the coming rate hikes are will determine movement of both short- and long-term mortgage rates.
The 30-year fixed-rate average Monday inched up to 6.03 percent, and the 15-year fixed-rate rose to 5.41 percent. The 1-year adjustable was up at 3.51 percent. The benchmark 10-year Treasury bond yield surged to 4.87 percent, and the 30-year Treasury bond yield climbed to 5.53 percent.
Sales of existing single-family home sales have continued strong this year. Sales were up 2.5 percent to an annual rate of 6.64 million units in April from March, the National Association of Realtors reported. The median price also rose to $176,000 in April.
However, sales of newly constructed single-family homes have already slipped. The Census Bureau last month reported new home sales fell 11.8 percent to an annual rate of 1 million units in April from the previous month.
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