Interesting write-up on Bloomberg this morning about housing prices via a Harvard study. Chart below captures the main message which is two-fold from my perspective:
- We’re very far from 2006 levels, implying we’re no where close to a housing bubble. As a matter of fact, we’re below late 1980 levels. I suppose certain U.S. markets could be in bubble territory but I believe there are other forces at work here.
- Low interest rates have driven up home values as buyers can afford more home given the lower monthly mortgage payment.
Additionally, low inventory levels of homes available for sale have also pushed prices higher. However, it doesn’t appear that home prices have disconnected from where interest/mortgage rates are currently, especially in light of the lack of for sale inventory. It really is basic supply/demand and cost of capital factors that are currently driving home prices. If interest/mortgage rates were to meaningfully rise and/or a glut of homes for sale hit the market I would expect home price increases to moderate or even decline.
If lenders were to open the flood gates and prices were to take another leg up from here then we might have something to worry about. Until then. let’s not get ahead of ourselves. .