Brief Thoughts on the Real Estate Market

by | Jan 13, 2009 | Forecasting

Do you LOVE America?


    Real estate prices over the last 18 months have been absolutely destroyed. Not many markets have escaped the price collapses in the real estate sector.

    As a renter, i have spent the last 3 or 4 years wondering if I should buy a home. Luckily, I hesitated and didn’t pull the trigger back in 2005 when many of my friends were moving into overpriced 4 bedroom homes with ARM’s and 0 down payments. My wife hated me for it. I didn’t really understand why I didn’t want to pull the trigger — call it a gut feeling. Some of my close friends and acquaintances were calling me crazy, urging me to get into a house. At the time, I was a little short on funds, and a 0-down move-in sounded very tempting.

    In 2007, the entire market started to unravel, and my paranoia seemed to have paid off.

    The deflationary collapse of the real estate market is now about 2 months in. And once again, I am tempted to make a move. I’m not sure yet, how this will play out for me on a personal note, but I am seriously considering finally making my first home purchase.

    As of today, mortgage rates look like they are hovering right around the 5% mark. With the Fed recently ZIRP, I can see these rates coming down even further in the next six months. Will we actually see mortgage rates fall to 4.5%? or perhaps even 4.0%?

    Whatever the case may be regarding rates, combine them with the current real estate deflationary cycle with home prices down 15% to 40%, and there may be a great opportunity there. If you plan on flipping the house, it is probably a bad idea, but for a 30 year mortgage on a house you plan on living in with your family for a while… it could be a winner.

    Peter Schiff, in an interview on Fox News’ Your World Cavuto, debated a Beverly Hills real estate agent about whether it is time to buy a house or not. Naturally, you can guess where Schiff stand on the issue. Mr. Schiff continues to call for a dollar collapse, high inflation and further deterioration of the real estate market. And I agree with most of his points.

    However, if we are to see a severe hyper-inflationary cycle due to the debasement of the US Dollar, we could potentially see prices, all prices, skyrocket. The Fed will eventually boost interest rates to make up for the Trillions they have been printing thus far, forcing home mortgages to who knows what levels… 8% or more??

    This leads me to the conclusion that maybe it is a good time to start looking for a home — and if you happen to find a great deal, perhaps jump on it!

    5% Mortgage rates seem to be a good thing, and locking in a rate like this on a deflated property can really payoff (for your pocketbook). It’s impossible to time the market and know exactly when the ‘bottom is in’. When/If the dollar begins to reinflate, it may be too late.

    And if you happen to get into a home prior to the inflationary cycle firing up, you could make out like a bandit. If what Mr. Schiff is predicting actually happens, and we see severe inflation and debasement of the US Dollar, the $1500 dollars a month you may be paying on a mortgage will also be devalued, meaning that what $1500 dollars buys today may cost $3000 five to ten years from now.

    So why not lock in a good price on a home today (or some time in the next 12 months, before interest rates begin to rise and inflation kicks in)?


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