I’ve been pondering a question. Where will the money come from to boost the sagging housing market? How will the real estate market re-inflate?
1. Inflation. As the ‘real value of the US Dollar’ declines, because of monetary stimulus, skyrocketing deficits etc. Inflation will occur as soon as the economic outlook improves significantly. Inflation raises the price of ’stuff’ and historically real estate benefits as a safe haven from inflation.
2. Hedge Funds and Private Equity. Billions are sitting ready to pounce on real estate deals. Money is starting to flow into deeply discounted deals.
3. Foreign capital seeking a safe haven. Yes, the US dollar may fall with domestic inflation, but far less than the inflation that may occur in the developing world, where many nations have ’stimulated’ their economies too. The US real estate market is a safe haven.
4. Tax incented consumers. The Congress will extend, and enlarge the home buyer tax credit in November. This will ignite a flurry similar to the Cars for Clunkers program. Why? it will be simpler, and broader and maybe richer.
5. Artificially low interest rates. Yes, rates are back at record lows again - 4.99% today on a 30 year fixed.
6. Banks starting to lend. Yes, again… its beginning to flow…
Am I being too bullish? Re-read this blog entry in 6 months, the Dow is about to break 10,000 - in October 2009. In April of 2009 I said, ‘by the fall’ the money would re-inflate the stock market first… it takes markets 6-9 months for the butterflies wings to create tsunamis.
In this cycle, the tsunamis of cash injected in our economies will create rising oceans of market prices.
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