One of the things economists love to do is make predictions. Two of the most respected economic analysts, Abby Joeseph Cohen of Goldman Sachs and Lackshman Achuthan of the Economic Cycle Research Institute have independently come out stating that there will be no double dip recession. It’s almost as if they are reading the exact same script, their thoughts on the economy are so similar. Both state that the economy is poised for marginal growth but that unemployment will remain high. Growth it seems will be coming largely from emerging markets like China and South America. Both feel interest rates will remain low for some time. One fear is that the Federal Reserve will be behind the curve in adjusting for inflation, a theory I subscribe to.
So what does this discussion doing on a real estate broker’s blog? Well here’s how I interpret and digest this information: If you own a home with equity and haven’t refinanced, the time to do so is now. Freddie Mac surveyed lenders this week and reported that interest rates actually rose from an average 30 year conforming rate (Below $417,000 loan amounts) of 4.19% to 4.23% in the past couple weeks. The Fed is preparing a second stimulus package of “Quantitative Easing” or “QE 2”, targeted at increasing lending and keeping rates low, even bringing them lower; (investors want the Fed to be bold and make their move, so they pushed rates up this week). Federal Reserve Chairman Bernanke should announce his plan in early November. When this happens, we will likely see the perfect opportunity to refinance. This is why you want to start now. Remember that borrowing today is tougher than ever and you will need to provide more personal information to the lender than you would if you were applying for a job with the Department of Defense. Because this takes so much time and you’ll want to be in process when the rates are near or at bottom, start now. If you wait to start then, you’ll likely be frustrated since the lenders will be so overwhelmed with refinancing and purchases that you’ll feel like you’re at Disneyland, waiting in the hot sun, in a line that circles the Matterhorn… 18 times.
The other reason I’m discussing these revelations, is that I remain firmly in the camp that inflation is coming and that mild inflation is good for real estate. If you noticed, I said refinances and purchases. That’s because I believe we are poised to see purchase activity accelerate. I don’t mean prices are going to rise immediately, but I do believe things are getting better, despite the doomsayers who point to a rise in foreclosure activity. And mark my words, as soon as employment picks up any steam; expect housing prices to respond very favorably, and interest rates will rise.