Posted by ray@lcorn on January 20, 2004 at 17:42:14:
Tony,
Your friend is not too far away from my own thinking… however some clarification is needed. I agree that short terms rates will stay low through the election. There are some other factors that will also keep the low rate policy in place, including the weak job market and still worrisome deflation. I think that by mid-year we will see the Fed step on the inflation pump. Whether they can do that without the usual concomitant rise in short term rates remains to be seen, but that seems to be the plan.
Long term rates however are another story… after the 100bps jump in treasuries (10yr) this past summer, the bond markets are still jittery. We could easily see another 50-100bps rise in long term rates by Q2 this year. '05 is likely the year its time to pay the piper. Because the recovery has been entirely stimulus driven, there will have to be another correction. How deep? Who knows… the gov’t is holding some powerful cards, and they haven’t played them all yet.
I do not agree that the real estate markets are headed for the meltdown of the early nineties. The presence of securitized financing, REIT ownership and the lack of oversupply has brought a level of stability to real estate never before experienced. That should prevent a major correction in commerical valuations, though a retreat from the hyper-valued mid single digit caps is in the cards. The rise in long term rates will demand that.
Residential value appreciation is already slowing, but the continuance of the liberal Fed policies above will continue to prop up the market in most places. Some of the hyper markets should cool, but I don’t see a major correction on the horizon there either.
Hold off? Not me… I don’t know how to do anything else!
ray