The motivation, methods, and economic effects of artificially high real estate Prices in the United States 2009 to Present

Abstract

By purchasing mortgages backed securities in default from banks in exchange for cash, and manipulating interest rates through its bond buying programs, the Federal Reserve has not only stemmed the drop in housing prices, but also inflated housing prices by manipulating supply and demand mechanics. In the short-term, quantitative easing 3 succeeded in stopping the steep fall in U.S. housing prices but long-term, consequences are on the horizon. Debt financed quantitative easing programs successfully created short-term housing price inflation at the expense of long-term prosperity. The long-term consequences of quantitative easing will likely occur shortly after quantitative easing ends and interest rates are allowed to rise. This paper explains the process of how the Federal Reserve (USA) has successfully manipulated housing prices, temporarily restored consumer confidence in the American economy and finally, projects what will happen when interest rates eventually rise. Free market forces determine prices, and inevitably the housing market faces a major downward price correction.