Falling home prices and tax credit for first time buyers bolstering demand

According to Bloomberg.com, falling home prices and a government tax credit for first- time buyers are bolstering demand for housing. A return to economic growth may also help the property market. Federal Reserve Chairman Ben Bernanke said this week that the worst U.S. recession since the 1930s has probably ended, yet growth may not be strong enough to quickly cut the unemployment rate. said Donald Rissmiller, chief economist at Strategas Research Partners in New York,said "“The Federal Reserve are telling us that rates are going to be low for an extended period so that’s benefiting potential homeowners who are entering the mortgage market."He does not think that the policy makers want to make the mistakes of past episodes where stimulus was withdrawn too early.

The bond purchases from Fannie Mae, Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans while still selling the securities backed by them at a profit. The plan helped drive mortgage rates to a record low of 4.78 percent twice in April.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance declined 8.6 percent in the week ended Sept. 11. The group’s refinancing gauge fell 7.4 percent, while the index of purchases declined 10 percent.

Single-family home starts dropped 3 percent in August, the first decrease since January, while work began on 25 percent more multifamily units such as apartments, figures from the Commerce Department showed today. The decline in single-family starts may signal reluctance on the part of builders to start new homes as the government’s tax credit for first time buyers is set to expire later this year.

Rising foreclosures and falling home prices remain impediments to a full housing recovery. Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month in August as job losses left many homeowners unable to keep up with their mortgage payments, property data service RealtyTrac H