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January 12, 2005


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Great, great find. Let's file this under: Even a broken clock is right twice a day.


People forget that the reason interest rates are so low was because a few years ago we were facing the possibility of "deflation" on a greater scale than that which affected Japan for the better part of a decade.

People have also forgotten the fact that a robust economy whith all its segments firing demands a higher interest rate. A healthy economy functions well with interest rates at 8%. There have been prior real estate booms without 1% Fed rates. So its a dynamic, well oiled economy that fuels expansions on all fronts, not only the real estate segment.

There are many people in government & business staying up late at night trying to figure out how to reenergize this economy so that it indeed fires up all its cylinders. They will eventually find a way, and interest rates will rise, maybe beyond 8%.

Also dismissed in many analyses, is the fact that the federal government has emptied out its coffers and has been writing checks without funds. This monolith of debt can only be paid down with inflated dollars, lots and lots of them. Over the next 5 years we should see interest rates go north of 10% as we try to get a hold of this ever increasing debt monster.

The other fact forgotten is that back in the early to mid 1990's nobody wanted to buy real estate. Affordability rates in California hovered between 45% and 50%, closer to the national average. Back then people were renting their primary residence and investing in AOL, DELL, Yahoo, and Amazon. The returns were incredible as speculation ran wild.

Back then, people bought a property because they wanted a home. There were plenty of resale homes available, and it took a couple of months to sell your home. All the speculation was sucked up by the stock market, with none left to share with real estate.

However, as the stock market toppled, all that money, facilitated by low interest rates found real estate as a suitable alternative. Slowly the real estate market was infected with speculation, drawing more and more people. And although real estate has more "uses" than stocks, it too has an investment quality we can all appreciate at the moment.

Unfortunately, nothing lasts forever, and beign forewarned allows you to be forearmed. How much longer can this bull real estate market last in California? Well if I knew that, I wouldn't be here responding to a blog posting (my guess, is 2007).

The Real Estate Pimp

This real estate bubble thing is getting more annoying than even Simon Cowel.

A number of legit experts mock all this fear mongering.

I reproduced some of their transcripts in my Real Estate Pimp adVice newsletter.

It'll help you figure it for yourself.

Koenig and Strey Chicago MLS Search and Real Estate

Everyone needs some perspective...

When I bought my first house, rates were in the 8's. When I moved to Las Vegas in 1998, we were thrilled to have a rate of 7. When I refi'd and had a rate of 5.5, I took some cash out of my house, and paid off college and auto loans - and ended up with a few hundred dollars better cash flow on a monthly basis.

Take a look at Mortgage rates (not Fed overnight interest rates - they are two TOTALLY different things) over the past 5 years...



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