If the housing market stays hot in 2013, does anyone think Ben Bernanke will start raising interest rate in 2014? If yes, why do you think so? If no, why do you think so?
Bernanke raising interest rate.
By E-man Follow Tue, 22 Jan 2013, 11:37pm 1,190 views 17 comments
In San Jose CA 95131
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Simi Valley, CA
it won't be "hot" enough to lead to a reduction in interest rate. maybe in 2014.
my predictions: mortgage rate will go down 0.5% from here and prices will be up by 7-10% this year.
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Scottsdale, AZ
robertoaribas's website
they've already announced they are waiting for 6.5% unemployment... As employment rises, there will likely be an increase in the number of people counted in the workforce, so jobs could increase for quite sometime, before unemployment drops below 6.5%. (to be in the workforce, you have to be actually looking for a job)
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Baltimore, MD
robertoaribas says
OK, so no interest rate increases for at least another 4 years!
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They have to wind down QE first before tightening. That may raise borrowing cost
As long as inflation is where they are now, they'll keep the prime rate low. Of course if unemployment gets close to 6.5%, inflation may be problamatic and alter their plan. This is BB fed, there is nothing unpredicable about him, he'll inflate until inflation becomes a problem. Inflation will be a problem in the near future.
Then there is the possibility of BB being reappointed, (which he would) and him accepting (which he may not) He bridged the US through the most perilous time and may just hand it off to someone else in 2014.
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E-man says
I don't think so. That would be counter-productive to their goal, which is a weak dollar, negative real rates and higher inflation.
The problem they face is all others want to do the exact same thing, except the euro.
Bank of England is engaged in open-ended QE, Japan is very close to it and the new PM Shinzo Abe really wants to devalue the yen.
The euro cannot devalue in an open-ended fashion because it is not tied to a nation state and the ECB has only a single mandate - price stability.
There are too many nonlinear processes, the goal as an investor would be to stay smart, nimble and pay attention rather than being dogmatic about outcomes.
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Los Angeles, CA
Low rates are permanent. There is no escape from the black hole of zirp, reason is federal deficit. It can grow forever with zirp. One talking head said the deficit will grow for minumum 10 more years.
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San Jose, CA
Housing is only a small portion effecting interest rate. More important is business expansion.
When businesses begin to hire significantly more people and salary start to grow, then be a signal that too much disposable money circulating in the economy. When too much money chasing too little products, there are cash available to be taken in form of higher interest rate. FED calls it “fighting inflation”.
Remember; the FED “angels” are also in business of making money, without mercy to the people.
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Well, cheap money leads to mal-investments. Since Ben Bernanke mentioned that he would keep interest rate low to mid 2015, or until unemployment falls to 6.5%, it just seems too obvious to investors like myself, who are chasing yields and making the spreads above the borrowing interest rate.
In recent months, the spreads on housing has been tightening, and people are buying properties with 4% - 5% cap, which is ridiculous. It seems like people are looking for return of capital instead of return on capital because of the fear of high inflation in the coming years. Therefore, everyone is buying hard asset. Real estate just happens to be a hard asset that produces income compared to precious metals.
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E-man says
4-5% CAP over 1.8% US T-10, historically is not that ridiculous. Risk premium for RE investment of 3% is rather typical. Now is time for stock market, is the area where I am currently focus on.
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Skokie, IL
SFace says
Inflation already is a problem. The government inflation number is nonsense.
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San Jose, CA
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REpro says
Well, I cannot argue with this. My partner and I currently make over 25% cash on cash return and have paper equity of $200k so we're sticking with real estate for another 6 months or so. Hope to close another 3 to 5 deals before calling it quit. Fingers crossed.
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It's a great time to be holding a lot of debt.
So sad I cannot stomach it.
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epitaph says
It's only great if you can fix that debt for 30 years at 4% and earn at least 7%+ with the borrowed money. Otherwise, it's not a great time. It might in fact be a nightmare time.
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Seattle, WA
David Losh's website
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E-man says
This is the part that concerns me.
We were called to a property in 2008 by Bank of America to clear it out after foreclosure. Fine, when we got there the place was already clean, but had a brand new lock on the garage door. Long story short is the company they originally hired took everyhting out of the house, packed it into the garage, and billed Bank of America.
They had called us due to a long standing preferred provider relationship.
My gut told me the house was worth about $150K, but they already had an offer in escrow for $225K. That's why they needed us. They were closing the sale, and needed to be sure the property was ready.
Ever since that time, at the auctions, or with short sales, I think of a number in my head, and some one else pays way more than I would.
I don't get it. It makes no sense to me, but prices keep going up.
The margins on flips keep shrinking, and guys keep doing them. It makes no sense.
The very fact all of these people rushed in to Real Estate since 2008 like the economy crashing didn't happen really bothers me. I don't see it ending well.
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E-man says
No.
Because he said so.
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David Losh says
Part of that is because you live in beautiful Seattle, Washington.
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Seattle, WA
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JodyChunder says
Seattle Washington makes even less sense.
We have an employment segment that does make more than $100K a year, with more than one person per household making over $100K. Lots of professional people keep showing up here for jobs at Amazon, and Microsoft. Those wages push up the affordability index.
We have pockets of Seattle that are extremely hot while other parts of Seattle are falling, or lagging.
I did a CMA for a long time client last week who wanted it for an easy refinance. I couldn't hit his numbers because of the number of short sales surrounding him. Short sales, and bank owned properties were all that were for sale, or sold.
That distressed market doesn't drag down the over all sales data because it's confined to other pockets. It's a schizophrenic market place.
Now on top of that we have Paul Allen of Microsoft who is building thousands of vertical housing units, and office space close to down town. The next ring of urban neighborhoods have thousands of apartments being completed. We keep building, and prices are still going up.
The data is all there to look at, but people only look at what is right in front of them.