I Worry About Higher Mortgage Rates — And Other Stuff

“When all the experts unanimously agree, it makes me nervous,” Inman Publisher Brad Inman writes. “I’ll never forget the careless chorus of experts pumping up the housing market in 2008.”

For 10 or more years, I’ve been buying assets and have often proclaimed, “I’ll never sell.”

But as the expression goes, never say never. I’ve sold some assets in the past six months and just signed listing agreements with two great real estate agents to sell two homes in California.

My thinking — I suspect many other homeowners agree — it’s a good time to take some real estate chips off the table.

Do I think a property crash is looming? No.

But rising rates, among other trends, make me nervous. (Full disclosure: one of the worst investment decisions I ever made was selling a California home in 2010.)

Nothing has helped the housing market more than super low interest rates. And now rates are rising.

The 30-year fixed-rate loan is about 3.22 percent, up from 3.11 percent last week, ac­cord­ing to Fred­die Mac. A year ago, mort­gage rates were at a record-low 2.65 percent.

Further rate increases will not sink the demand for houses, but it raises messy questions, particularly in a hyper-inflated market.

Low rates were the only way for many consumers to rationalize or economize sky-high prices.

If rates continue to climb, something has to give and that is probably home prices

It may also unlock some reluctant owners to sell to get liquidity on their home equity. No one can time the market, but you can make a rational current-value decision about holding or selling an asset.

Will I buy something else? Not now, but I may step in if inventory rises and prices come down.

I love real estate too much. 

Experts like to point to rising incomes, low rates and the millennial demographic bulge as the underpinnings of a robust market this coming year. 

Plus, investors buying up homes has pushed up prices, adding to a dynamic market.

But investors — Wall Street really in this case — are fair-weather friends of residential real estate and can be gone in a flash.

And the demographic argument, while valid, can be undermined by shifting short-term consumer sentiment and practical household economic behavior.

Rising rates could undermine big picture giddiness. And booming inflation will undercut the benefits of wage growth.

Finally, these times have taught us some lessons about forecasts, predictions and experts.

Take rising inflation. Yes, it all seems explainable in hindsight. But the reality is, it snuck up on the smartest people in the world, making them look rather stupid. And we are all paying the price.

When all of the experts unanimously agree — I call it smarty pants exuberance — it makes me nervous. I will never forget the careless chorus of experts pumping up the housing market in 2008.

Twenty-five years ago, my older brother attended a workshop at Harvard where a noted professor trashed the prospects of Apple recovering. The faltering company was on its back, a penny stock back then, accounting for splits since.

Soon after the Harvard lecture, my brother bought shares in Apple. 

He said, “The certainty with which [the Harvard luminary] delivered his dire prediction was just too much, so I went the other way.”

Email Brad Inman

Source link