The federal reserve is going to stop buying Mortgage Backed Securities. That means the mortgages that people get will not be bought by a part of our government. The free market will have to buy those mortgages instead. That is likely to increase interest rates on mortgages by 1-2%, maybe a lot more.
Going from 5% to 6% 11.9% of buying power is lost.
Going from 5% to 7% 23.9% of buying power is lost.
When buying power is lost if incomes do not go up prices must drop.
When you take away the free money and higher interest rates prices should drop.
Below is a housing price prediction website. Look at it and see if it makes sense.
Grand Rapids is forecast to see average housing prices rise 2.7% in 2010.
Markets will improve in most of the U.S. with average housing deflation forecast at 8.7% nationally. The figure represents the lowest amount of deflation on an annual basis in the four years Housing Predictor has been forecasting markets. Some areas of the country will surprise homeowners with appreciation, while especially hard hit areas will see a repeat of double-digit deflation, despite rising home sales.