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What Will Rising Rates Do to Housing?

Jun 27, 2013

Posted by

John Burns

John Burns is CEO of John Burns Real Estate Consulting, a national source of independent housing research, advice and consulting. The Irvine California-based firm has strategically placed offices nat Read more

We are happy to see rising mortgage rates because we believe a stable housing market is a better long-term goal than a booming and busting market, and the housing market has been booming! On June 3, I addressed this on Fox Business News. Some of my comments were:

  • Appreciation rates: "We have a lot of home price appreciation going on, and if the Fed keeps rates where they are, we are going to see a lot more."
  • Investors are flipping homes again: "It is such an almost obvious bet at this point that everyone is piling in...We are seeing flippers now in the market...You only need to own the home for a couple of months to make a profit."
  • Tremendous Fed stimulus: "3.5-4% interest rates will cause rising home prices everywhere, and at some point...affordability is going to get out of whack, and that is when you want to get out."
  • No bubble...yet: "I don't think we are in a housing bubble yet because prices are not out of line in relation to incomes, but I think it is time to start the conversation to make sure we don't end up in another one."

Watch the video.

Here are some additional anecdotes:

  • 20% appreciation: New home prices have risen 20%+/- in the SF Bay Area in the last year.
  • Record high land prices: Finished lot prices are at all-time highs in good locations in Phoenix, Orlando, and all 4 major markets in Texas.
  • Bullish stocks: Wall Street is so optimistic about future home price appreciation that:

Some home builder stocks are back to 2005 levels.

Almost every stock sector remotely tied to housing is up 100% from 2 years ago. 

There have been 3 home builder IPOs and 4 additional IPO announcements already this year, which is more than the last 20 years combined.