In a shocker, home interest rates headed UP UP UP this week from 2.5 to 4.5% on a standard 30 year loan. People are rushing to buy homes before 5 and 6% rates lock in. But is this a fantasy? Can interest rates really rise back to normal in our debt economy?
My prediction is that rates will be headed back to zero pretty soon (within months). It is delusional to think that tapering off will actually ever happen. Of course we won’t admit it but keep saying end of 2013, midi 2014, early 2015, … (same pattern in the past). When QE got started there never was a plan to stop, let alone unwinding it. Does anybody really believe a drug addict when he says he will quite tomorrow, next week or next year? If he eventually quits, that’s because he’s dead, but not before that.
Bernanke may bark once in a while about taking away the punch bowl. But he will soon be replaced by someone who will continue QE infinity if not doubling it. That’s almost as sure as the sun rising from the east.
My observation is that the discussions in the past few years are more like looking at the housing market circus as a bystander. Those who were actually looking for some buying/selling advice might have had some degree of disappointment. The sentiment on housing market has been predominantly negative. However, looking back if you did buy a house couple years ago, you could sell for a profit now. Sure, hind site is always 2020. My point is that it maybe more constructive if we also look into the possibilities to deal with the ups and downs of the housing market.
If the renters don’t show up quickly and in large numbers (which is already a problem in some markets, I have read), then heads will roll at some hedge funds and PE firms, as thy always do when they can’t meet their numbers they proposed in the powerpoint presentations when they were pitching this to higher ups and other money. It’s a brutal world, and losers don’t last long in it.
Be careful not to buy any of the funds and REITs that these guys are pitching to the retail investor to cover their butts, though. I can see a lot of yield chasing naive retirees falling for the 8% returns some are promising. I doubt that they will able to make so much money. Maintenance costs will be much more than they expect, and, they will not be able to meet projected rent increases with wages stagnant. Some PE firms have projected out 5% a year rent increases, which is absurd, considering the quality of tenants they will get, and the general income stagnation most are experiencing.