Aldante I am not an expert on bonds but I do believe that the bond market will drive the real estate market. I don’t have a magic number for you though. I think that as long as the long term rates for mortgages keep below 6% things are fine but once you creep beyond 7 and then 8% things will start to get hairy. Getting into double digits will be very tough on people. The problem is that I find it very hard to draw on history as a template for the future. We tried to do that for the 1990s slump and that failed MISERABLY. I do recall renting a room from my cousin back in 1983 and she had a 12% mortgage. Can you imagine that here? 12% on a 500k loan. Holy smokes. No way can that be maintained. This is the scenario you posed by a doubling of the rate curve. Now that would indeed be catastrophic for homes.
What has confounded me now for almost 6 years has indeed been the persistence of long term rates. So I have given up on trying to predict them. All I can say is when they do fall apart THAT is when we will have a dislocation in housing prices. Look back at all the posts for the past many years on this site. How many posts about tsunamis due to foreclosures, how many posts about unemployment killing the housing market? Well how has that turned out? The market is by no means healthy at all but the govt is BOUND AND DETERMINED to float the boat and will continue to do so. Will it work? I don’t know. Will they continue trying?
What do you think?
Nobody needs to tell me about shadow inventory here. I go to the auctions. I can tell you how many homes get postponed to oblivion because I am looking at them every single day. I talk to people each day who have not made a payment in months and even longer and are not even in default.
The question is not whether you should or should not buy now. I have no idea if you should or should not, that is only something you can answer. I don’t share the same feelings that the world will collapse around us that some do, however I do feel that an 80’s like interest rate environment will be necessary to restore a sound economy.
As far as collusion among realtors yeah but only the smarter ones. Just look at the foreclosure stats and a hell of alot of realtors are idiots and drank/still drink the kool-aid. Plenty of them lost their homes. What I am trying to say is that some of them are to stupid to even realize how bad things will be in the future.
As far as flipping goes we are doing it because myself and the other investors, (piggs by the way) got sick of our money sitting in 1% CDs and last year decided to do something about it. If you want to think of us in the same way you think of someone looking for a handout on the freeway ramp that is okay with me. I look at us as taking advantage of an opportunity. If the govt/wall st is going to starve inventory then I am going to be on the side of the govt. We will do this only as long as the opportunity presents itself and then we will be out. The people that are good at flipping are successful today and were successful 5, 10 and 15 years ago. What I have learned in the time I have been doing it is that it is a hell of alot of work, very risky, and if you expect to just fall into money doing it you will lose. I see people overbidding at auctions today that scorch my group on homes we want. That is the way it goes. They will probably still do okay but someday the market will roll over.
Anyways when the market does roll over it will be brutal. However if you are not well positioned with cash, you may not be as ready as you hope. Prices will fall but you will qualify for alot less and your diminished dollar will hurt. So the scale slides. Just like the 80s there will be FANTASTIC long bond opportunities and people will get the hell out of real estate and that will excasserbate things. Those will alot of cash will be well positioned for opportunity. The tough choise will be homes or other opportunities.
I don’t see this happening for awhile, a few years? It will happen though. If you are a bond expert you know better then I.
