We have been hearing forever how the bubble is going to burst, and interest rates can't stay low forever.
In fact, The Wall Street Journal polled 56 economists, and 55 agree: Long-term interest rates will RISE in 2005.
Youch!
No worries though. As it turns out, http://www.ArborResearch.com has found that in the last 6 Wall Street Polls, the "experts" have predicted rising interest rates in each and every poll. However, interest rates have of course moved down.
Not only that, interest rates have been consistently moving down since the early 1980s, and the experts have consistently predicted incorrectly. With all due respect to the Journal, these guys suck. My 6 year old could have been right, more often.
Dr. Steve Sjuggerud,President, Investment U alerted me to this silliness through his online letter.
He says, "The actual forecasting record of the world's highest paid financial "experts" for forecasting interest rates is nothing short of disastrous...
...Since 1982, the beginning of Wall Street Journal's Forecasting Survey, the experts have gotten the direction of interest rates right in their predictions less than one third of the time.
Said another way, you or I could have flipped a coin as our prediction of the direction of interest rates. And we would have crushed the predictions of the experts.Right now, 55 out of 56 experts are predicting higher long-term interest rates in 2005.Most people will believe these forecasts. If they have any value at all, it is as a contrary indicator... Which tells us that interest rates may well fall in 2005."
Great, great find. Let's file this under: Even a broken clock is right twice a day.
Posted by: Behindthemortgage | January 13, 2005 at 08:06 AM
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).
Posted by: REOCalguy | March 2, 2005 at 04:34 PM
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.
Posted by: The Real Estate Pimp | May 13, 2005 at 02:02 PM
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...
Rates are STILL PRETTY DARN GOOD!
http://yourinternetagents.com/blogger/home/uploaded_images/mortrate.png
Posted by: Koenig and Strey Chicago MLS Search and Real Estate | October 17, 2005 at 11:10 AM