"Now is a good time to buy” is a statement that could be best described as a hard sell with what’s happening with the global economy, but it’s something some people in real estate have been saying increasingly over the past year.
True, some of those speculators are real estate agents desperate to make a sell.
But those who are pushing “now” as the time to buy have in their corner housing affordability, which is at pre-housing-bubble levels, and mortgage rates that are at all-time lows.
On the side against buying is a languishing economy, but some believe there will be another severe blow to the economy that could be the end to what some see as a golden opportunity for home buyers in the form of historically low mortgage rates. The blow that could make reticent buyers think twice about waiting is inflation.
“I really, honestly think that these interest rates are a once-in-a-lifetime unbelievable phenomenon,” said Steven Thomas, an account manager for Irvine-based Advantage Title Inc., who regularly compiles a report on the sales-to-price listing ratios for Orange County. “We’re not going to be seeing this again in our lifetime. All of the economic factors can’t be aligned like they are now forever.”
Thomas just issued his latest report on the Orange County housing market. It compares mortgage rates during other housing lulls. The average rate was 10% in 1990, 8% in 2000 and it is currently 4.5%.
That rate has been kept artificially low as a result of the Federal Reserve’s pledge to keep the overnight lending rate near zero.
But Thomas and some others think the Fed won’t hold the line on rates for long if inflation starts to creep up.
If signs of inflation become significant, the Fed may act. But those who wait for the Fed to act may be too late, because lenders will likely start raising rates long before the Fed acts.
“When they poured in so much money into economic stimulus, the dollar becomes much more worthless, and that’s when you have a ratcheting of prices,” Thomas said.
And when home prices do eventually go up, it’s a guarantee the Fed won’t leave that lending rate at zero.
Thomas believes interest rates could rise as much as two points in less than a quarter.
“I think we’re going to get those numbers to come in and as we see inflation, the marketplace will start to price it,” he said. “We’re talking a few months at the most. What you’ll find is that it will be like it was in the late ’70s, where interest rates were ratcheting up so darned fast it was unbelievable.”
A few points may not sound like much, but the math warrants at least a cautious double-take.
Take for example a $500,000 loan. If rates were to rise from 4.5% to 6.5%, that is about $100,000 difference in the lifetime of
See JERGLER, page C41
