Monday, May 02, 2005

A few weeks back I heartily seconded Andy Xie's belief that the party isn't over until the property bubble bursts. Well, mortgage rates in the US just won't rise, and the housing sector continues to stoke the flames of the US economy.

After topping out at 6.04% in late March, rates on 30-year FRMs are back down to 5.78% -- their lowest level since February. The 1-year ARMs which have been fueling the California housing market for the past two years have also scurried down from 4.33% in late March to 4.21% now.

Money continues to be dirt cheap. Even as short-term rates rise, long-term rates continue to be very low and the spiralling prices of real estate more than justifies (for as long as the bubble lasts) the borrowing expenses to build, add-on or buy housing. Hell, forget about reinvestment, just withdraw equity from your house to pay for a nice holiday in the south of France, as a bank ad here in the UK is encouraging British homeowners to do -- a wonderfuly American touch.

The party isn't over until the property bubble pops. With the Asians still intent on amassing US assets this year and the Fed sticking to its slow-go, barely-outpace-retail-inflation strategy of rate hikes, I don't see any pins being brought toward these bubbles anytime soon.

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