Is housing too hot to handle?

by MPA23 Aug 2013

With average loans at their highest rates in two years, existing home sales spiking upward and the largest home lender in the country, Wells Fargo & Co., eliminating more than 2,300 mortgage production jobs, are all of these signs that the housing market is headed back into a canyon before it reached the peak of the mountain?  

The average rate for a 30-year fixed-rate mortgage jumped to 4.68%, up from 4.56%, while the average rate for a 15-year fixed-rate mortgage rose from 3.6% to 3.71% according to  Freddie Mac. In addition, existing-home sales spiked 6.5% in July, according to data released Wednesday by the National Association of Realtors.

All of this news has some analysts worried.

“If housing prices rise in line with actual economic conditions, such as large-scale job creation or income growth, it is a positive development,” wrote guest columnist James Windle in an editorial for The Seattle Times. “The problem is the irrational exuberance of a bubble. This is the familiar situation when buyers enter the market out of fear of being priced out. Speculators accelerate price spikes through flipping. Prices make sudden gains.”

Private-equity firms, hedge funds and real estate investment trusts that bought distressed houses and turned them into rental properties are one segment of the market that is pushing up values. They’ve raised more than $18-billion and bought more than 100,000 properties since 2011, according to research firm DataQuick Information Systems Inc.

“Raising interest rates is one way to prevent another housing bubble,” Windle wrote. “The uptick in rates in recent weeks might already be having a cooling effect. Very low interest rates enable housing and other asset bubbles by encouraging people to enter the game and take greater risks.”

Despite the escalating numbers, mortgage rates still remain historically low and the inventory of available homes has risen 1.4% from June according to data from Realtor.com, so while housing bubble warning signs should not be ignored, the immediate future still looks promising.

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