Health of US housing market hangs on Fed’s Janet Yellen

The question of whether mortgage rates will surge in 2014, and consequently how healthy the U.S. housing market will be, hangs largely on the actions of Janet Yellen, whose nomination as chair of the Federal Reserve is up for a U.S. Senate vote next week.

Yellen will guide a tapering down of the Fed’s bond-buying program, which fueled housing boom gains — a process that must balance moving fast enough without going too quickly.

A winding down that happens too fast could alarm investors and cause mortgage rates to skyrocket, but moving too slow could cause the housing market to overheat.

As of last week, the average fixed rate on a 30-year mortgage was 4.48 percent, a 3.35 percent jump from early May, according to Freddie Mac data cited by Bloomberg News.

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“So far, first-time buyers have been missing from the housing recovery,” Diane Swonk, chief economist of Mesirow Financial in Chicago, told Bloomberg. “They need to come into the market in greater numbers because they have to buy properties before sellers can move up.”

U.S. home prices will rise roughly 5.3 percent in 2014, and sales of existing homes across the country will total 5.1 million, the National Association of Realtors predicted to Bloomberg. But the accuracy of any forecast hinges on how Yellen proceeds, S&P/Case-Shiller home-price index co-founder Karl Case told Bloomberg.

“We’ve never seen an intervention in the market like the Fed has done, so we’ve never seen an unwinding,” he added. [Bloomberg News] — Julie Strickland