^^^^^^^

Maybe so. But anytime asset prices are inflated, easy credit is always involved. People are willing to pay a lot more for something if they're paying with someone else's money. The source of the easy credit this time is gov backed MBS purchases- AKA taxpayer money. 

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alvarado wrote:
I think it has to do with lack of inventory.  I have been trying to buy a house for over 6 months now, through the FHA program.  I have seen hundreds of homes since this summer and the 8k credit that the government is offering is the last thing on my mind. Homes are being priced low to create  bidding wars.  There have been homes we have place offers on that have sold at over 70k of the asking price. Banks know the game they are playing and sadly for those who are genuinely interseted in buying a house are setting the short end of the stick.

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Yeah, but if the gov wasn't making sure those banks would lend to you by buying back the FHA loans, you wouldn't be able to buy at all. Neither would almost anyone. Therefore there would be more than enough inventory.

Right now, the banks that issue mortgages take on none of the risk for that mortgage. If they had to take on even 10% of the risk they wouldn't lend the money.

http://www.housingwire.com/2009/11/02/mba-urges-congress-to-rethink-10-risk-retention/

The problem isn't lack of inventory, it's the availability of cheap credit. 

"Is it going to end in March?  I doubt it, but we'll see."

I doubt it too.  I do think we may see interest rates climb a bit by then, maybe to about 6%.  Many realtors will use that to try to get buyers to jump in soon.  "You better buy now before interest rates go up."  I argue the exact opposite, especially on the West Side.  Buyers here take the biggest loan the bank will possibly give them to squeeze into an 800K house.  Add some extra interest to their payments, and they cannot possibly afford the same house.  Thus, prices will have to come down.  An added bonus will be that with lower purchase prices come lower property taxes too.

I agree that this program, more than any other, has had the effect of keeping the market high.  With low interest rates, banks have not incentive to clear any of the large quantities of bad mortgages.  If they did, they would be flooding the market with large quantities of inventory, which would inevitably lead to price drops for their own subsequent sales.  They can slowly release the inventory, creating the bidding frenzy, which is fed by the continuously extended "temporary" programs.

I always thought the role of the government in crises was to stabilize the market (or control the panic) by allowing time.  Its role was never to maintain an class of assets high so that the securities backing those assets (i.e., for fat cats) to be protected.

Like many here, I have been looking for a first place, but end up in bidding frenzies.  It is ironic that in a market that supposedly is going through some serious drops, it is the buyers who are getting desperate rather than the sellers.  Should it have been the other way around?