It’s fairly common knowledge that everyone is in the market, buying homes because prices are going up and so are interest rates. This has to be true because it’s on the news, the blogs and it’s been reality since the word “taper” entered the lexicon last May. So it must continue right? Unless it doesn’t.
It’s been my experience that in markets once everyone knows or thinks something, that is just about the time that things go in exactly the opposite direction. There are a few “big picture” reasons everyone cites as to why rates and or prices will keep rising:
–There is no inventory so lower supply means more price increases. Though this may be true, what if for every home that went up in price in the last 12 months, there is another person or family that realizes price went up in 2013 and 2014 will be a great year to put their home on the market and sell. We would have lots more inventory and prices would then fall right? That is not even counting the idea that the banks may have more foreclosed inventory that they would be excited to sell at higher prices AND many companies that bought real estate in bulk the last few years also might like to realize the gains value by selling. Finally, rates have roughly increased from 3.5% to 4.75% in the last 8 months on 30 year fixed loans. The rising rates could send some buyers to the sideline instead of prompting them to act!
–The job market/unemployment rate has approved dramatically and people who feel good about their jobs buy houses. A couple of things bother me about this one. First, every month, after we hear about how many jobs were created and how the unemployment rate has dropped, someone whispers about how many people have quick the job market. Just flat out decided that there is no work for them and they don’t get unemployment benefits any longer so as far as the government is concerned, they are no longer unemployed. So though they may no longer be unemployed, they sure aren’t in the market for a house. You could argue this number is manipulated.
–The Fed tapering the stimulus takes money out of the bond market and rates thus have to go up. There is a lot of big math here, but when you think about it, the Fed is stimulating the market, but if this stimulus was based on “X” amount of refinancing in the economy and refinancing has fallen by “2X” perhaps there is still enough juice in the monthly bond purchases to actually keep pushing rates down.
Finally, we don’t have to look too far to find plenty of occasions in markets when everyone thinks things will be one way, and they go the other.
-In 2000 everyone knew that the NASDAQ was just stopping at 5000 on it’s way to 10,000 and that it could never drop because it’s the technology age.
-In 2004 everyone knew that gold was dead and would never see the highs it saw in the 1970’s. Until it went to $1800 an ounce.
-In 2007 everyone knew that home values always go up and you can never get hurt owning real estate. We all know how that ended.
So look, I’m not saying everyone is wrong or that I know that prices and or rates will drop in 2014. I’m just saying, that maybe everyone isn’t correct about things taking off from here.
