Which way will real estate go?
Will it continue to rise, stall out or is there another crash in our future?
Most people seem to think real estate is out of the woods and the farthest thing from their mind is another crash.
How fast people forget. Wasn’t it just a few short years ago when the nightmare that was the housing bust made headline news almost nightly?
The resulting crash brought banks to the brink of failure and the financial system of the world to its knees.
The lines of for sale and foreclosure signs and the stories of woe from people who bought too much house or couldn’t understand what the word adjustable meant in their adjustable rate mortgage are now just a distant memory.
To prevent a global economic blow up, the central banks of the world created trillions of dollars through a myriad of programs and showered just about everyone with free cash, federal guarantees and dirt-cheap loans. Half a decade later, many of the loans and much of the free cash continue. Quantitative easing (also called asset purchases) floods another $75 billion a month into the debt sectors with no end in sight. The central banks assure us all is now right with the world of toxic mortgages, and yet they barely ease up on the money spigot.
Considering all the above, one has to pause to consider just how fast the public forgets such things as the bloodbath that was the housing crash.
But memories are indeed short, and I can find few people who will even consider that housing could ever go down again.
Washington’s policies have indeed rescued the real estate market temporarily and low interest rates are keeping it afloat, but at some point interest rates must rise from the zero ground they currently occupy. Its only a matter of historical precedent and time.
When rates eventually do rise, real estate is probably going to suffer once again and suffer by a lot more than people think.
As you can see from the chart, the real estate market is still struggling and is nowhere near where it was during the peak, all this despite the lowest interest rates on record.
No one can say for sure just where the real estate market will go in the months or years to come, but few will argue that rising interest rates will make it more difficult to buy a home, and that will show up once again in declining home sales.
This article expresses the opinions of Marc Cuniberti. He hosts “Money Matters” on KVMR FM 89.5 and 105.1 FM on Thursdays at noon. His website is www.moneymanagementradio.com.