I have previously stated that it would not be at all surprising if we see zero-interest financing in residential real estate before long.  In trying to describe the motivations of potential home purchasers, Michael Carliner admits that even zero-percent financing may not entice people to buy, from Bloomberg:

Now we’re seeing the opposite mindset. If a potential buyer believes that housing prices may fall more, then mortgage rates of 4.5 percent won’t attract home buyers. Rates could even drop to zero and it might not outweigh consumers’ negative perceptions.

He focuses on the “housing as investment” metric in offering his forecast, observing that buying an asset likely to decline in value is not such a good investment.  He ignores that the reason why housing is likely to decline in value, no matter what interest rates do, is that the market is massively oversupplied relative to demand.  Only in the latter stages of the boom did housing become an investment vehicle worth speculating on.  Before then and mostly again now, it comprised one of the four essentials to life–food, water, clothing, shelter (and air conditioning if you live in the South).   That it became possible to turn this most fundamental of human needs into a speculative commodity shows just how queered up were the financial incentives related to housing.

Neither does he figure out that ZIRP is just another means to decreased prices due to oversupply.  But what can you expect?  After all, he is an economist.

We’ll see how long it takes policy makers to bring the Fed’s ZIRP over to potential homeowers.  I’m guessing sometime about mid-2012, just in time for the election and the end of the Mayan calendar.

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