Paul's World

From James Hagerty at the WSJ: Uncle Sam Adds 5% to Prices of Homes, Goldman Says

Uncle Sam’s interventions in the housing market have pushed home prices 5% higher on a national average than they would have been otherwise, Goldman Sachs estimates in a report released late Friday.
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But these artificial props won’t last forever and may have created a false bottom in the market. “The risk of renewed home-price declines remains significant,” Goldman economist Alec Phillips writes in the report, “and our working assumption is a further 5% to 10% decline by mid-2010.”

In the research note, Phillips discussed how policies have reduced foreclosures, and stimulated demand with both the first-time home buyer tax credit and “abnormally low mortgage rates”. Phillips wrote (no link):

“In 2010, we expect some of these supports to fade. Fed and Treasury purchases of mortgage-backed securities will taper off, and the pause in foreclosures created by federal mortgage modification programs may end.The federal tax credit for first-time homebuyers appears likely to be extended for at least a few months, but probably no longer than through the first half of 2010.”