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With the Fed talking higher interest rates almost incessantly since 2013, we’ve seen one incremental hike so far in late 2015 with the official odds of another hike after December’s meeting on the subject dam near 100% it would seem a lock. In fact, the markets have already enacted an increase in interest rates with the 10-year Treasury, the benchmark for all manner of loans and mortgages, up ½% since the beginning of November. With the increase, what little remained of real estate affordability disappeared. Using San Francisco as an example and data from Paragon Real Estate the recent increase has increased the median 1.3 million Dollar monthly home payment by $330, and that includes a 20% down payment of $260,000 and a median income of some $270,000. For the record the median income in San Francisco is a little under $80,000 per year. An extreme example to be sure, taking a few steps back and looking at the bigger picture and real estate bubble 2.0 is well under way based on price, with new record highs in San Francisco, Seattle, Portland, Denver, Dallas and North Carolina. Price growth has far outstripped income growth since the previous bust so either interest rates go lower, incomes jump dramatically, prices fall or some combination of the 3 to restore affordability. Lower interest rates are the path of least resistance, despite the official odds the Fed may well blink again on higher interest rates December 14th.

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