Bubble, Bubble . . . It’s Officially Back

We quote:

“Average home prices across 20 cities have now reached their spring 2004 level. For the first time, two cities — Denver and Dallas — surpassed the peaks they reached before the 2008 financial crisis.

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“Las Vegas and Phoenix, two cities where prices fell hard during the bust, have come roaring back, in large part because investors have scooped up many foreclosed properties to flip or rent out. Year-over-year prices rose 23.3% in Las Vegas and 20.6% in Phoenix. . . . Prices rose 19.2% in the Los Angeles region over the year and 17.3% in the San Diego area.”

Andrew Khoury, Home Prices Still Rising at a Torrid Pace, L.A. Times, July 31, 2013, at p. B1.

The problem is that this is largely driven by the artificially low interest rates that are beginning to inch up and are not long for this world, and by the fact that lots of folks out there have lots of cash which they can’t profitably invest elsewhere. Income from bonds in the crapper, the stock market is “bubbling” too, so investing in real estate seems like a good idea. But most people — especially at the entry housing level, who don’t have an extra half a mil and up under their mattress — don’t have that kind of money and they are increasingly being excluded from the housing market. Our concern is that interest rates will go up and ordinary people who have to buy homes on time will be further deterred from buying homes at these fancy prices (the median is now up there at over $385,000). Do we hear the sound of another bubble getting ready to pop? You tell us.

We think that this trend is not going to end well — and the end won’t be pretty. But as long as Uncle Ben (Bernanke, that is) and Uncle Sam are keeping interest rates down, down, down, this madness will continue. But for how long?

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