The existing home sales number this morning was huge, at 6.47
million annual rate. Prices were strong. The median price was up
2% for the month (6.7% over year ago.) The mean home price
rose 5.1% in one month (9.7% for the year.)
Couple things. First, this is not inflation, at least not the
kind you worry about pushing interest rates higher. Property markets
are simply capitalizing housing assets at today's low mortgage
rates.
Second, this is not a bubble. Rising productivity, incomes, and
net worth will keep the rental value of housing assets rising too.
It is a one-time step-up in housing values.
Finally, it is not as stimulative as it first seems. Although
rising housing prices boost construction activity and furniture
sales, it is a double-edge sword. Huge activity in the mortgage
and mortgage refinancing markets is very profitable business for
lenders, much more profitable than corporate lending. But falling
business loans (from $1106 billion in November, 2000 to $880 billion
today) are the reason the economy has not yet been able to mount
a sustainable strong recovery. That won't happen until the mortgage
market cools enough to make banks want to make business loans again.
I believe we are nearing the end of this burst of housing activity.
That makes mortgage issuers and home builders more risky than they
seem today. And it means we may see business loans kick in soon,
giving the economy another lift. |
