Housing’s Narrowly Open Window

Foreclosure levels have continued to drop throughout the summer, and the already dwindling foreclosure activity over the past year has led to a scarcity of properties and increasing demand for housing. These factors have prompted real estate websites such as Zillow and RealtyTrac to announce that the U.S. housing market may be at near a bottom.

There's certainly reason to feel that the long-suffering housing market is getting better.  New home inventories are at historic lows and high rental rates are shifting sentiment toward home ownership. Although housing guru Robert Shiller isn't completely convinced, it's hard to be bearish when even the Miami market is starting to bounce. 

The real test will come when mortgage rates rise. In the face of higher stock prices, a bit more optimism on Europe and some hope that the fiscal cliff will be extended into next summer, the logic for owning fixed income will likely get increasingly weak. If the uptick in home buying can survive higher rates, we just might have a bull market on our hands.