I don't think that the low interest rates (whether it's artificial or not is another issue) are hindering the housing recovery.
If rates were higher, then homes would be less affordable. And, in a free market, prices would drop as interest rates rose in order to maintain that balance in affordability.
But--while higher rates would make homes less affordable--we've also seen historically that there isn't such a clear and direct relationship. After all, the argument would then have to be (as it has been) that, as rates drop, prices go up to maintain that affordability balance. But as we've seen in the past couple of years, rates falling by 50% haven't resulted in rising prices.
And when interest rates were 12%, 14%, or higher, values didn't drop by half, either.
What we saw then was that other forms of financing (equity sharing, owner financing, wrap mortgages, etc.) became more popular.
Plus, there are many other factors affecting the market. Buyer psychology is a big one. Employment (or lack thereof) is another. The geographic imbalance of available housing and where the people are is another. (Example: Detroit.) Lenders' willingness to make loans is another. As noted below, a lot of people today just can't get loans.
So, let's step back a moment. What would it take to spur a housing recovery? More consumer confidence--both in the general direction of the economy and in the direction of the real estate market. Interest rates have little to do with that. Employment is a big driver.
Affordable housing. With today's interest rates and the price declines, we pretty much have that today.
Lenders' willingness to make loans. Now, there's a possible problem. Still, I'm glad we aren't back where we were a few years ago where they'd make loans to anyone and anything.
So, it looks like it's largely an issue of consumer confidence. If someone buys a home today, will they have a job in a year or two? If they have a job, what about the value of the home--will it have declined by 10%, 20%, or more? If they want to sell--or need to sell--in 6-7 years, will they be able to? Those are the issues that I suspect are keeping a lot of buyers out of the market.
As for the rates being "artificially low," do you really think the demand for money is all that great? I'd suggest, instead, that the few areas that are charging high rates (credit card companies, for instance) are charging rates that are "artificially high." But we know that large corporations are sitting on huge piles of cash that they're not investing--either in financial instruments or in new plants and equipment. Some cite "uncertainty" over government policies. Others cite "uncertainty" over the economy. (Kind of sounds like the mirror image of a lack of consumer confidence.) So those corporations aren't in the market borrowing, and that's keeping rates low.
Meanwhile, despite the debt ceiling issue/crisis of a few months ago, have you seen what other countries are doing? And what American consumers are doing? They're pouring money into Treasuries. Interest rates aren't solely controlled by the Fed; they're also a response to what U.S. and foreign investors perceive to be relative risk. The lower the risk, the lower the interest rate. So I think the argument that interest rates are artificially low is pretty shaky.
As for the few comments below that consumers are waiting for lower interest rates . . . nah. Lower than they've been in 40+ years? That's not the reason. Are they waiting for lower prices? As I said above, I think it's really that they're afraid of lower prices. And that, again, brings us back to consumer confidence.