Above it is clear that prices are continuing to correct from the 2005-2007 bubble.  The “fog a mirror” approval process led to overwhelming housing demand.  No doc, liar loans, and high investor demand for mortgage backed securities further exacerbated the housing bubble.  Now, years later, in 2011 we are trending toward 2002 values.  2011 and now 2012 prices are still being heavily influenced by distressed foreclosure and short sale properties, which according to Realtytrak are selling at 30% below market value in most markets.

This downward pressure is pushing values down despite rates that at a 40 year low.  The sub 4% rates are the lowest in recent memory and should be increasing housing demand not only as an investment in ones future, but also a hedge against inflation.  The governments efforts to keep rates down will eventually cause inflation of interest rates.  My prediction is that the rate of interest rate inflation could further hamper value recovery.  While home prices should increase the evidence is there that purchase rates could outpace appreciation of home values.

The good news is that home affordability is incredible right now and if you plan to stay for a while you’re sure to be a long term winner.

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