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Tuesday, August 19, 2014
"Steve, didn't you say that – once mortgage rates fall to X% – house prices would soar? Aren't we there now?"
A friend that reads my newsletter asked me those questions over the weekend at a party.
I was actually speechless... because I didn't remember writing about a specific interest-rate level that would cause a house-price boom.
While I don't remember saying a specific level, I do believe we are there, now. Mortgage rates are incredibly low now – and there's a great chance they could stay low for years. If this happens, then house prices can soar.
Don't take my word for it on interest rates – take the world's foremost expert on them. Take The Bond King's word for it...
Last month, Bill Gross (The Bond King) said that the interest rate on 10-year government bonds belongs in the 2.5%-3% range "now and for the next few years."
If Bill Gross is right, then mortgage rates in the next few years will stay near record-low levels.
With house prices in most of America still in the "affordable" range, and with near-record-low mortgage rates, you have plenty of upside potential in house prices in America.
What kind of mortgage rates are we talking about here?
We should be looking at mortgage rates of between 4% and 4.5%. Here's why:
Mortgage rates are typically about 1.5 percentage points above the 10-year government bond rate. If The Bond King is right about interest rates being between 2.5% and 3% "for the next few years," then mortgage rates should stay roughly in the 4%-4.5% range.
Low interest rates and high affordability are the main reasons that house prices could soar. We have plenty of other reasons, too...
Another big reason folks are about to buy real estate is because they don't know what else to do with their money – they're earning zero percent in the bank and they're afraid of the stock market.
We also have a basic math problem that should push home prices higher as well – builders haven't built enough homes to meet demand. When there's more demand than supply, prices go higher.
Yes, house prices have gone up in recent years. But with near-record low rates, high affordability, low supply, and nothing else to do with your money, house prices have a huge amount of upside potential from here, in my opinion.
Please, don't tell yourself that you're too late... or that you've already missed it.
There's still plenty of upside left in U.S. housing prices... If you can, take advantage of it!
Last week, the interest rate on a German 10-year government bond fell below 1%. Steve says the message from the German bond market and Bill Gross is the same: "Long-term interest rates are likely NOT going back to 'normal' any time soon..." Get all the details here.
"Europe is struggling right now," Steve writes. "But inflation is not a problem. So a weaker currency is an easy fix. And Europe's currency – the euro – is going down..." If you haven't taken advantage of this situation yet, Steve says there's an easy way to do it.
THE BIOTECH BULL MARKET IS STILL RUNNING
Another sign the biotech bull market is still running: Celgene just reached a new all-time high.
In 2012, we urged readers to buy the biotech sector. We follow biotech because it's capable of huge booms and busts. Get into booms early, avoid the busts, and you can make great money in biotech.
Early this month, we highlighted the strong price action in Gilead Sciences. Gilead is one of the giant blue chips of the biotech sector. Its strong performance is proof the biotech bull market is still running.
Another biotech blue chip is Celgene. It's a huge, $73 billion firm with rising sales growth. As you can see from the two-year chart, Celgene just reached a new high... which is more proof the biotech bull market is still running.