June prices of existing homes rose 6.3% from May, and are up 14.7% over a year ago. This was triggered by the June drop in long-term rates below 4% that drove the 30 year fixed mortgage down with it.
The housing market is not a bubble; this is an interest rate story. The drop in interest rates has caused a massive one-time repricing of the housing stock. The housing market will not collapse because U.S. inflation and interest rates will stay low. U.S. inflation is anchored by prices in India and China.
This housing game is in the ninth inning, though. The recent revaluation of the Yuan triggered a sharp rise in Treasury bond rates. Mortgages will follow. Expect a final patooie of activity as people race to buy and refinance fearing the end of low rates. I expect the run-up of prices to stop. Don’t leverage yourself into real estate, but don’t sell your house either. (By the way, stocks are a better long term investment than houses anyway; they have out performed housing 3 to 1 over the last 25 years.)
JR
