The Coming Tsunami of Inflation

Real Estate Agent with The Michael Group

Yes, we are currently in the doldrums and the economy looks like it is going to collapse, especially if you listen to national newscasters.  After Bernanke stomped out the meteoric rise in house prices by jacking interest rates up to clamp off speculation, a downward spiral ensued of no new speculative buyers and honest-to-goodness owner-occupants unable to buy with interest-only or teaser rates on an ARM. This was followed by price reductions due to lack of demand and then no demand at all, since no one could or wanted to get a loan. 

Now, more than a year after that heavy hand of the Fed to quench inflation, we have an over-reaction to the dire situation we're in, but fortunately (depending on your point of view) mortgage loans are still extremely hard to get.  The promise of Presidential or Congressional stimulus will cure the low prices due to low demand and staggering unemployment, but will the cure eventually be worse than the disease?

At the rate money is being injected into the economy and the promise of more over-priming the pump, inflation threatens to tear the roof off our house of cards, starting in early 2010.  No one is worried about it for now, since the signs of anything good happening in the economy are more difficult to find than hen's teeth, but by summer the recovery will show signs of appearing.  No, everyone will not be back at work then, and no, hyperinflation will not be on the talk shows and worry-mongers' top 10 lists. 

But, by Christmas the signs will start to show and not long after it will be too late.  Surfers will crave the tower wave coming in to shore, but others will realize its lethality only when gas prices hit $4 again.  What follows will be similar to decades ago when, if you weren't owning a house, you wished you were.  Everyone will want hard assets: gold, real estate, commodities in the spring next year, and interest rates will begin a rapid rise. 

Surfers, can you see the water receding from the shoreline?  Of course.  Is the massive wave visible yet? No, but we know it's coming.  So, should I buy or sell?  If you can hang on in the low water level, hang on and be prepared to paddle in about a year.  If you can't hang on that long, get your credit cleaned up, sock away some cash and get ready to jump in later this year.  Ask yourself, if you had known in summer of 2007 that a crash was coming, what would you have done?  Sold out, banked cash and waited.  Right?

Soon it will be time to do the exact opposite.  Buy in, dump cash and wait for the rise.  But, for heaven's sake don't be imprudent.  If you can't afford to wait an extra 6 months, you're over-extended.  Don't use variable rate notes to speculate -- it's a trap!  If you're not able to pay for your homestead, you'll lose it.  Live in the property as if you expected to retire in it.  Speculating with your homestead is foolhardy.  The bottom is coming, if not already in a market near you.  Get ready.  If you have cash, do you want to lock those favorable interest rates paying 4% fixed for the next 5 years?  Think about it - it's a trap. 

Just remember that each local real estate market has its own characteristics.  North Texas is different from Orange County; each will have its own curve to follow predicated on the local economy as influenced by the surrounding markets and the huge national and international investment flows. 

We did let greed get the better of us these past couple of years or so, and now fear may prolong the suffering. 


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Nate Rowe
Oakstone Properties, Homes in Richmond VA - Richmond, VA
Realtor, Homes in Richmond VA

Thank you for the info.  That was alot to take in, but I am glad I read it.

Jan 07, 2009 07:11 AM #1
Erik Hitzelberger
RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY
Louisville - Middletown Real Estate

I've felt the same way for some time now.  Governments cannot inject cash into the economy at this rate without having to pay the piper at some point.  Inflation is coming and you can bet the farm that gas prices will hit $4.00 again as soon as the economy turns the corner.  Until recently, I agreed with your time line.  After seeing the 60 Mins report predicting the even larger wave of upcoming alt-A and Option Arm resets, I now wonder if we aren't looking at 3Q 2011. Regardless, I'm buying now and recommending that everyone who can do the same.  Excellent post.

Jan 07, 2009 07:44 AM #2
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