Interesting development in the housing market yesterday, as home sales declined 9.4% in July as compared to the June data.
For those who subscribe to the view that we’re witnessing a housing bubble even bigger than the one we saw 10 years ago this comes as little surprise. However what’s interesting to think about is if we are finally nearing the point where the irrational exuberance is coming to an end.
There’s an old phrase in the financial world that a bubble can go on longer than you can stay solvent. Which is why the bubbles that the Federal Reserve regularly inflates makes life not so easy on the average person who just wants to live life and save for retirement.
It’s not easy to time when the bubbles pop, and making investment decisions can be tricky when you see what’s coming but just don’t know when. Which is why the latest home sales data is worth taking note of.
Keep in mind that this is only one month of data (and given that it comes from the government’s BLS it’s worth taking with a grain of salt). But at least if you think from the perspective of what would happen before the housing bubble bursts, this would certainly be one of the signs to look for.
Because if the Federal Reserve ever really did raise interest rates in any significant manner, or sell of the bundle of mortgage bonds it purchased during the last crisis when nobody else would, seeing the housing market tumble is exactly what you would expect.
Could the Fed come out tomorrow and print a whole new bundle of cash and inflate the bubble even further? Absolutely.
But would I be careful right now before investing in real estate at all time high prices? Again absolutely. Which is why I’ll be keeping an eye on next month’s home sales data to see if the trend continues.
