This chart of the Case-Shiller index (with my estimate based on
median price per square foot over the last two months) shows just
how different the character of this year has been:

There was a plodding upwards of prices last year, for sure, but so
far this year, prices haven’t so much been plodding as exploding.

For a more granular look, here are the month to month changes in the
median price per square foot:  

The condo series is a bit of a wild animal so I usually ignore it;
the underlying trend it better expressed by the more staid detached
home series (blue line).  But even that has been on fire: the
detached home median price per square foot is up 23% from a year
ago, and up 16% in the first six months of 2013 alone.

This price surge has been due, as I’ve written about incessantly, to
ridiculously low inventory and even ridiculously lower mortgage
rates.  One of those conditions persists; the other has changed
somewhat drastically.  More on that below; first, here are the
above two charts starting at the peak of the bubble, followed by the
same thing but for the regular median price (vs. price per square
foot):

Onto some supply and demand stuff… sales continued their pattern
of being similar to, but typically slightly higher than, last
year: 

Inventory seems to have arrested its plunge, finally, and ever so
slightly turned up:

The increase is more pronounced if we look at active listings only,
which should be some comfort to potential buyers (as active
inventory is more “real” than contingent, which is in kind of a
limbo state):

 

Here’s a linear look at total inventory, putting the small bounce in
perspective:

This has slightly improved months of inventory, but it remains
extremely low on an absolute basis:

And of course, we look at months of inventory because it is a good
predictor of near-term price pressure, as the following graph
shows.  The dramatic nature of the recent monthly price
increases can be seen on this graph too.  All things equal, it
predicts more strong upward price pressure to come.

But all things are not equal… as everyone has heard by now, there
has been a dramatic increase in interest rates over the past couple
of months:

This is big, in my view.  Low rates have been a big driver of
housing demand, for both investors (who are seeking out yield
wherever they can find it) and residents (who are compelled to buy
due to the favorable rent-vs-buy comparison enabled by super low
rates).  This rate increase will almost certainly undercut both
sources of demand. 

To what extent, I don’t know, but this illustration helps
demonstrate the impact:  eyeballing it, the average mortgage
rate prior to the recent surge was in the range of 3.5%.  It’s
now about 4.5%.  A buyer who is trying to hit a certain
dollar-amount budget for a monthly payment just saw the size of the
loan they can afford drop by over 11% in about two months. 
That has got to have an impact. 

It could be slow to feed through to declining demand… in fact,
there may have been an early opposite effect in which buyers feel
like they should rush to buy before rates go up further (this is
what drove the final peak-volume mania phase of the housing bubble
in spring 2004).  But it seems to me that this must cool off
the housing market as buyers find they can afford less, and
investors see that yields from other investments are less absurdly
low.  This is to say nothing of the impact that a tightening of
credit conditions might have on our over-levered economy in general.

So the recent move in rates could be a pretty big deal.  We
will see, I suppose.  In the meantime, the housing market
continues to be supported by the level of inventory, which has
finally started to turn up a bit, but remains extremely low overall.