Can The Housing Market Stand On Its Own Two Feet?

The federal government has intervened massively to hold up real estate prices and reduce foreclosures.

The result? Home prices and foreclosures have held steady for the past three months.

Now the FHA is tightening lending standards. Interest rates are edging up. The Fed's massive purchasing of mortgage-backed securities is coming to an end.

Will the housing market stand up without the government prop-ups?

Sure, it will still function, but prices will likely plunge to their real level. I don't know why we think high real estate values are an unalloyed good thing. Lower-priced real estate means more affordable housing.

The Los Angeles Times says:

Low interest rates and increased access to mortgages backed by the Federal Housing Administration have also been bolstering the market. Many economists expect interest rates to rise again this year, and the FHA is tightening its lending standards. The sluggish home price index report Tuesday raised questions anew of whether the housing market can function robustly without that government help.

"The Case-Shiller indices are three-month moving averages, so November's readings reflect transactions that took place in September, October and November, when demand was heating up in anticipation of the expiration of the tax credit for first-time home buyers," Patrick Newport, U.S. economist at IHS Global Insight, wrote in a note to clients. "Historically low interest rates also fueled demand, and stronger demand helped stabilize home prices during the second half of 2009. But will this trend continue? Probably not."

On a seasonally adjusted basis, Phoenix had the biggest gain, 1.6%, and San Francisco was a close second, up 1.5%. The Los Angeles area, which includes Orange County, gained 1%, as did San Diego.

The index compares sales of detached houses with previous sales and accounts for factors such as remodeling.