Is the Air Coming Out of Housing Bubble 2.0?
Peter Schiff put it pretty bluntly in a podcast last week. We don't have a booming economy. We have bubbles. And it looks like the air is starting to come out of some of those bubbles. We see signs of trouble, particularly in interest rate-sensitive sectors such as real estate. As just one example, home sales in California have hit the lowest level in a decade. And it's not just California. We're seeing declines in many of the "most splendid housing bubbles" in America. Even more troubling is that we're seeing these tremors and interest rates aren't historically high.
But they are rising quickly. According to an article in Wolf Street, they may soon hit 6% and that could be the real tipping point.
Mortgage rates have eclipsed the 5% level. According to the Mortgage Bankers Association, the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) and a 20% down-payment rose to 5.17% for the latest reporting week. That marks the highest rate since September 2009.
The next stop is 6%. As Wolf Street notes, that was the mortgage rate in December 2008.
Of course, rising rates are by design. The Federal Reserve has nudged the rate upward, and it is also shedding Treasuries and mortgage-backed securities. Here's the impact we've seen since the beginning of the year, according to Wolf Street.
Keep in mind, 6% is still historically low.
Here's another disturbing piece of the puzzle. Home prices have risen precipitously and have eclipsed levels seen just prior to the housing bust. Average home prices nationwide have surged 11.5% above the crazy peak of housing bubble number one. In a nutshell, we're looking at housing bubble 2.0.
Wolf Street predicts the real pain will kick in as the mortgage rate approaches 6%. And that is likely less than a year away at the current rate.
This is just one sector of the economy, but it's indicative of what's going on more broadly. While the mainstream touts the "economic boom," there is underlying rot that rising rates are about to expose. As Peter said, the housing market is a leading indicator of the impact of rising interest rates.
Previous Previous post: The Republican Tax Cuts Were a Political Failure. What Does That Mean for a Party That Agrees on Little Else? The GOP needs a new theory of government.