I know I don't have a crystal ball and I am not trying to be all doom and gloom, but I believe that interest rates are going to be on the rise very soon. There are people that disagree with me, some believe that the rates will not go up because this economy could not handle the ramifications. Others believe that if money became more expensive home buyers would stop buying and the slump that our country is in would get worse. If rates do go up home prices will have to go down, and not just a little. I believe the perfect storm is on the horizon, here's why,
1) If our government can't fix our budget problems and our world credit rating is downgraded, borrowing will become much harder and those who can borrow will pay more for the money. Essentially interest rates will go up.
2) The value of the American Dollar is low, meaning the dollar is weak. The only way that the dollar can be strengthened is for the American bond price to go up. This means that investors will get a greater return on their dollar for buying American bonds. In order for that to happen the government will have to stop buying our own bonds and raise the intrest rates of home inorder to pay the return being offered. When rates go up the price of homes will have to go down.
3) Basic economics states that with low supply and high demand prices raise, and with high supply and low demand prices fall. In todays Real Estate market supply is high and demand is just okay, not low just okay. The supply is not going anywhere, as a matter of fact there are still millions of foreclosures that have yet to hit the market. Over half of American homeowners are still upside down or under water on the homes they own and if they can't afford the payments they will have to sell or foreclose, all the while the inventory grows. When rates go up the demand for homes will go down which means fewer buyers and more sellers...low demand and high inventory prices will fall.
Regardless now is the time to buy. During this economic crisis I don't see prices falling more the 10%-15%. To be able to get a home at the rates being offered today at todays price is a once in a life time opportunity, and could save buyers hundreds of thousands of dollars in interest. Timing is everything. Buy low, sell high, make money. It is in times like these that the new wealthy are born.
