Is there a housing bubble? We’re worried.

U.S. housing affordability fell last month to near the lowest level ever as home prices surge. Mortgage interest rates now exceed 5.2% – up from 3.6% two years ago. And the Fed is raising rates again – as it should – but this too will likely raise mortgage rates.

The average mortgage payment is now $1,800 a month. That’s 70% higher than the pre-Covid high. The only other time home payments were this high was in 2007 on the eve of the Great Financial Crisis.

As the chart below from Black Knight’s mortgage monitor shows, home prices are up 19.9% over this time a year ago. Yes, that’s very good news for homeowners as their home equity surges, but a killer for home buyers – especially first-time buyers.

Loan to income levels are also rising, which makes defaults more likely.

Is any of this sounding familiar? All of this has been artificially inflated by years of artificially low rates, Fed policies of purchasing hundreds of billions of dollars of mortgage-backed securities, and Congress passing out hundreds of billions for taxpayer funded rental assistance. It’s all helium pumped into a balloon that could soon pop.

We hope we’re wrong.