What happens when home prices soar? We get boatloads of cash out refinancings where homeowners extract accumulated equity in their homes (to pay for things like vacations, college tuition for children, ventures like WUPHF, etc.)
Cash out refinancings, of course, lower the equity cushion that helps reduce default risk. And the US housing market is back near housing bubble highs of 2005 and 2006 (red line).
Will housing continue its meteoric rise (orange line)? Not if foreign homebuyers continue to retreat.
Recently, the National Association of Realtors reported that home buying in the US by non-resident foreign investors over the two-year period through March 2019 collapsed by 56%. It wasn’t just Chinese investors. It was foreign investors from all major countries, including from Canada and Mexico, that radically slashed their home buying in the US.
I wonder if Jerome Powell and other Fed types will discuss this at the KC Fed’s Jackson Hole annual conference?
Probably the same probability as seeing jackalopes in Jackson Hole.