What a Million Dollars Buys Addendum

This article appeared in the Times today commenting on record existing home sales in June. As you can see, both the bulls and the bears can cut the data to make their arguments. In this case, bears point to slowing in new home sales and bulls point to increasing existing home sales.

Either way, after experiencing a bubble of another sort right at the start of my career, I'm incredibly wary of dipping my toe into real estate at this point. I don't necessarily see the hard landing we experienced with the stock market in 2000-2001, but I also don't think we'll simply see a leveling off of prices, either.

Truth is, we may not know the answer for years to come. Rising interest rates may have the effect of leveling off prices, but what happens when all these interest only mortgages switch to principal and interest in a few years (most are five years interest only)? Many of those who entered these mortgages did so with the expectation that they'll be able to afford their payments at that point or sell the house for a profit, but if that doesn't happen then you could have an ugly situation where homeowners are mailing their keys back to the bank. I don't see this happeing to many people, but pity those who buy in at the tail end of the increase.