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Your big raise courtesy of the Fed

Posted by Scott Van Voorhis April 8, 2013 07:03 AM

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If you are just getting back into the market after sitting out the downturn, well aren't you in for quite a surprise!

Your paycheck may not be much bigger than it was back in 2008, and, adjusted for inflation, has probably gone down.

But at least when it comes to buying a home, Ben Bernanke's Fed has given you the biggest raise you'll ever get in your life.

Forget a nice 5 percent of 10 percent - actually even 20 percent is too low.

Try a good third - or more than 33 percent. That's right. If $300,000 was your limit back in the good old days before the 2008 crash, you can boost that now to more than $400,000.

Or if it was $400,000 before, congratulations, you can now afford a half million dollar house - and then some.

Here's how The Wall Street Journal describes the impact of the Fed's massive campaign to keep interest rates at crazy, rock bottom levels.

The impact of low mortgage rates is profound. Before the Fed began buying mortgage-backed securities in late 2008, rates for 30-year fixed mortgages stood at around 6.1%, and a borrower who could qualify for a $1,000 monthly payment could get a $165,000 mortgage. Today, that same borrower, at a 3.5% rate, can borrow as much as $222,000.

In other words, the Fed's low-rate campaign has increased purchasing power by a third.

OK, so why isn't the comment board of this blog flooded with "Thanks Ben" notes from grateful buyers? Why in the world are there so many frustrated, unhappy buyers out there?

As always, there is a big gap between global monetary manipulations and market reality.

While on paper the big beneficiaries of the Fed's interest rate policy might seem to be buyers, who can get more bang for their buck, in reality it is sellers who are the big winners here.

Buyers are quickly finding out that whatever advantage they might gain from rock bottom mortgage rates is quickly being eroded by rising prices.

And that's even if they can find a home to buy - the number of listings on the market is the lowest it has been in years and has yet to rebound, even with the spring sales market in high gear now.

The biggest winners, ultimately, will be sellers, especially those who had the misfortune to buy - and grossly overpay - during the bubble years of the mid-to-late 2000s.

But the fact is, the Fed's program was never really designed to help buyers. Rather, the aim has been to bail out sellers, with true affordability a secondary consideration, if that.

Happy Monday!

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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