Money: Real Estate Reality

A flood of invest now books and rising rates signal time for caution

Home prices have been rising faster than personal income for years, fueling concerns about a real estate bubble. After all, a house is worth only what someone can pay. And now that the Federal Reserve is raising interest rates, the affordability question is on the front burner.

The Fed nudged up its benchmark short-term Fed funds rate last week to 1.25%, from 1%. By itself that move will have little impact on housing. Yet the Fed is widely expected to push the rate to 2% by year's end and 3.5% by the end of 2005. The typical mortgage rate will surge...

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