As you probably have realized, when it comes to the real estate market, I’m a “Glass Half-Full” kind of guy. But lately, even I have begun to question some of my core assumptions. I have been predicting inflation, rising rates, an improving economy and a stabilizing real estate market for some months now. Yet January and February have been so slow for real estate, that I’m beginning to think I may be wrong.
Yes, inflation in commodities and rising food and energy prices certainly suggest core inflation is percolating, yet the labor market shows no signs of inflation – there are just too many unemployed to create wage pressure. Retail sales have been improving, a key to an improving economy since 70% of the economy hinges on consumer spending, however, even those latest numbers are disappointing. Perhaps it’s the weather; perhaps it’s just a typical slow start to the new year. But from my vantage point, things are starting to look a little like the 1st quarter of 2009, a time fear and uncertainty. There is one big difference between now and then. In Q1 2009 the stock market was in a free fall and panic was felt everywhere. Fast forward to Q1 2011, and the stock market is not on its way towards 6500 but rather touching new highs; the employment numbers really are somewhat better and there isn’t that sense of sheer panic like there was 2 years ago. So why then, am I filled with so much trepidation? I suppose it stems from my general sense of uncertainty. Uncertainty in the Middle East; uncertainty about the deficit, both in California and the Nation; uncertainty about rising interest rates (I’m certain they’ve risen, but uncertain what effect that will have on housing); and yes, my uncertainty of whether the glass is still half full, or just perhaps it’s become half empty.
The Real Estate Conversation 
Aside from the massive amounts of inventory on the market, interest rates will naturally play a huge role going forward. In my opinion, Federal Reserve policy is a failure. They are painted in a corner, I believe. The markets may force his hand. The ECB is talking rate hikes and developed economies like Canada and Australia have already raised rates and emerging economies have aggressively been raising rates. The value of the dollar is being crushed thereby increasing commodity prices as you’ve noted, which puts a pinch on the consumer. I think Bernanke believes we can appreciate our way out this (wealth effect). Sadly, I don’t believe this will end well. My colleagues call me a “bear”. I think of myself as a realist. The best offense is a good defense.