Is it just me, or does anyone think a housing price decline is coming

  1. Increased demand at the moment as people rush to buy before mortgage rates go up further. Consider that people only buy houses a couple of times in their lives. If an unusually high number of people bought houses in 2013, they either did not buy in prior years or will not buy in future years.

  2. Fed will likely taper QE3 in 2014, reducing downward pressure on long term interest rates.

  3. Fed will likely raise rates in early 2014, causing the yield curve to rise.

  4. Size limits for non-conforming loans will go down by about $25k; government wants to reduce risk in FNMA/FHLMC.

  5. Home builders are starting the most constructions in five years (seems a bit late). A lot of home price increase this year was due to restricted inventory.

It’s another bubble that will burst in 2015.

Most of the increase in mortgage apps are folks that are refinancing, so that increased demand can be a bit misleading. Not sure if that was Ohai’s point #1 or not.

Maybe this is geographically-specific, but where I’m at I don’t think anyone would classify as a bubble. Prices are no where near 2006 levels, still 20%+ lower. Home values seem to have improved modestly over the last 1-2 years, but my understanding is that is mainly due to lack of inventory. Again, this may all be specific to my geography.

Don’t know about nationwide, but in my area, we have a severe shortage of houses. There’s been a run-up in house prices recently, but more builders are entering the area and more houses are getting built. This will probably cause house prices to drop eventually.

Remember though–I live in an area that’s pretty isolated from the rest of the world, and we’re in the middle of an oil boom. These are the factors driving prices here–not interest rates or nonconforming loans.

Hard to see how housing prices can withstand interest rate increases. Mortgages have fairly high durations (albeit less than a similar maturity bullet bond), and so as they become more expensive, it will push down demand. However, the concentration of wealth should make high end stuff more immune than low end stuff.

I do have a client who thinks that the economic fundamentals could ratchet up so strongly that they overpower the effects of interest rate changes, but I think that that would imply an increase far in excess of what we are seeing so far. I do think that the economy is on better footing now, but that whether this means that stocks and mortgages are now safer places to be is a separate question.

I agree that the effect varies by location, and that supply/demand factors might matter more than the true economic effects of interest rates. For instance, fear of interest rate increases might drive buyer behavior more than what should be the result of the actual interest rate increase.


I think there’s still a lot of pent up demand. We had a solid 3-4 years of no one buying houses. And, the Fed isn’t raising rates until 2015.

Otherwise I agree.

Not happening. This low rate environment will last a long, long time. Think Japan long.

Long short term rates != Low long term rates, but i agree, i think low rates environment will last for a while.

As a Canadian, I’m just waiting for the bubble to burst. I think we’ve got something like the most inflated housing prices in the world, or whatever that headline said the other day. We didn’t really get hit in 2008, and things have just been climbing ever since. Meanwhile I’m just stashing up a down payment so I can get that 800 sq ft condo with a view for less than $550k…

Well unless there is a bubble it is more likely you see a correction via inflation (stable house prices with correction only in real terms). The problem with houses is that the correction comes mostly from the first time buyers. Other people do not care as much: if you sell a house to buy a house, the absolute price is not as much relevant as for a first time buyer.

30 year mortgage rates are already like 1% higher than they were a year ago - despite no change in Fed Funds.

For what it’s worth, I don’t really see another 2007 type of crash coming. If anything, it will be more of a gentle decline, or maybe even positive price appreciation that is below inflation.

The Deutsche bank report from last week claims the Candian housing market is 60% overvalued, the most in the world. Britain comes in second with 35% overvalued and France in third wih a 30% overvaluation.

Japan is the most undervalued at 40% and the US is 10% undervalued.

When will the paste function work?

I wonder what’s going to happen when the baby boomers start downsizing and eventually moving into these retirement and assisted living communities. Their demographic owns homes at a much higher rate than any other. I can’t imagine there will be enough demand to fill the supply.

the Deutsche bank housing research is overvalued

Agree, ALOT of pent-up demand. Plus with the economy improving people aren’t as scared to buy any more.

However rising rates should keep a lid on any significant appreciation.


This is exactly what I fear.

Agree. Economists are like weathermen, they can be wrong 90% of the time and still keep their job.