Maintaining 4.5% Mortgage Rates Could Increase Home Ownership By 800,000 And Stabilize Housing Market

 ”…set of charts from a presentation by Columbia’s real estate guru Chris Mayer showing house prices relative to 50-year trends:

http://online.wsj.com/article/SB122948162452913103.html

“…a 4.5% mortgage rate will raise housing demand significantly. A simple forecast can be obtained by applying the 2003-2004 homeownership rates to 2007 households. We use the 2003-2004 home ownership rates because those were the years of the lowest previous mortgage rates (the average mortgage rate was 5.8%).

An increase in the homeownership rate from 67.9 (third quarter, 2008) to 68.6 (the average rate from 2003-2004) would increase homeownership by about 800,000 new homeowners. If we also take into account the changing relative age distribution of the population, there would be a total of 1.6 million new homeowners. A simple statistical analysis examining the impact of lower mortgage rates and higher unemployment rates yields an even higher, and firmer, estimate of 2.4 million additional owner occupied homes in 2009.

The increased demand for housing arising from lower mortgage rates would provide a floor on further house price declines. Estimates in our recent paper suggest that real house prices increase by about 75% of the decline in after-tax mortgage payments. So a decline in mortgage payments of 16% would result in approximately a 12% floor on the decline in house prices….”