Software & Finance - Monthly Magazine Online

Volume 4 - Issue 4

April 2014

Housing Bubble in Summer Months of 2014?

As of March 30, 2014, the 30 years fixed mortgage rate is around 4.5%. The fear of interest rate going up is indicated in the market. When Fed minutes are released after FOMC (Federal Open Market Committee) meeting once in every 6 weeks, the interest rates will become very sensitive on the day. Since the Fed Funds Rate is near 0 to 0.25, for the last over 5 years that is from Dec 16, 2008. There is no doubt that it would have caused credit bubble. However this credit bubble is helping a lot to rise the home prices.


Here is the S&P case-shiller 10 city composite home price index from Jan 2000 to Jan 2014. As of Jan 2014, the home price index is at 180.08 which is near flat compared to Dec 2013. Since the demand is very high, but the supply of the homes are very less, it is pushing the home prices like anything. Still it has not reached the level of June 2006 where home prices experiences a bubble and index was at 226.29.





During the summer months especially during June, July and August, there will be huge demand for the homes. Mainly it correlates with the schools starting in late August and early september. There will be many people on the market during this summer also because still the interest rates are low eventhough it is little higher compared to last 12 months. But moving forward, by next year, the interest rate will be very high compared to current levels. There will be huge bidding war between the home buyers. There is no doubt that this summer will be the seller's market. The home prices will peak during this summer 2014 and after that home prices will stay near flat or go down a little. However home buyers can not afford because of interest rates going higher. Only cash buyers can take advantage of the drop in home prices.