Ah, spring is here and young people’s thoughts turn to … real estate.

Home shoppers have been jamming open houses in Brooklyn and elsewhere in New York City, according to New York Magazine. More than 60 people showed up at the open house of a relatively modest two-story home in Windsor Terrace listed at $1.5 million and within days the owners had six offers, says NYM. Even renters are having a tough time; some people I know are staring at sharp rent hikes.

Emboldened by rising portfolios and a sense that the economy is improving, home shoppers are eager to lock onto low rates. Many are looking to Brooklyn as a first choice, not simply because it’s cheaper than Manhattan. Say what you want about Barclays Center, hosting professional sports and world-class concerts adds to the borough’s cachet.

But when you get right down to it, demand for homes coming on the market is surging because supply in Brooklyn is lacking. The financial crisis caused construction projects to be cancelled or put on hold, creating a multi-year gap in new properties. As for rentals, much of what was available was absorbed by people who were displaced from their homes by Tropical Storm Sandy.

As high as prices are, the expense of renting still compels many New Yorkers to want to pour their money into a mortgage. Much of the demand I see is coming from young families who want to put down roots.

With low rates likely continuing for the next couple of years, the opportunity to buy a place at a favorable rate will persist. However, the lack of inventory in Brooklyn and New York City – and the resultant higher prices – will likely cause a number of home buyers to head for the suburbs, however reluctantly. Condos across the Hudson in New Jersey reportedly have been selling briskly.

New housing units coming on line in the next few year will take some pressure off of inventory. However, by then interest rates may well be higher.

The combination of higher rates and greater inventory could cause prices to plateau for a time. On balance, though, I think that people who are serious about buying should do so quickly if they have enough money. New inventory will be absorbed before too long because of pent-up demand.  Interest rates can’t go anywhere but up. And real estate can be an excellent inflation hedge.

As economist Robert J. Shiller pointed out in the New York Times last Sunday, buyers would be well served by locking up low rates because significantly higher interest rates and inflation could be coming in the years ahead. By fixing their payments at a low level they will prosper as home values rise, but not their mortgage payments.

“With rates now relatively low, this could be an auspicious time to buy a house with a fixed-rate mortgage,” Mr. Shiller wrote. “That could make good sense for people who aren’t out to bet on the housing or mortgage markets but are instead focused on settling into a home for the long term.”

When an economist famous for identifying bubbles and predicting crashes makes a statement like this, it means something.

IN THE MEDIA

I am quoted here on the Wall Street Journal site about how investors are altering the bonds they are buying.

http://online.wsj.com/article/SB10001424127887323550604578410362704631232.html

For those who don’t subscribe to the Wall Street Journal and can’t get access, here is an excerpt:

April 6, 2013

Bond Investors Rotate, But Still Court Risks

By MURRAY COLEMAN

The highly anticipated “great rotation” from bonds into stocks has yet to be seen.

Instead, investors are choosing to shift more money around within different types of bond funds.

…

With the tech wreck of 2000-2002 and the credit crisis in 2008 still fresh on their minds, advisers say many investors remain wary of making huge moves into stock funds.

Instead, they are taking more risks on the bond side, notes Tom Fredrickson, a financial planner in New York who largely works on an hourly basis with investors.

“People are cautious because they still remember being burned by stocks,” he says. “The theory of a rotation out of bonds has been overstated. But a large rotation within bond funds is clearly taking place.”