Have you bought gasoline lately? I'm sure you have, and you are beginning to feel "pain at the pump". What about groceries? If you haven't noticed an increase yet, you will. Gas is up because oil is up which makes diesel and all kinds of transportation costs go up. Couple that with some crop results which were lower than expected, and we can expect more pain at the grocery store as well.
I'm a "seasoned" REALTOR®, meaning I've been in the business quite a awhile. I've seen inflation before, and I know what happens. The Federal Reserve Chairman, currently Ben Bernanke, can do two things to combat inflation. He can increase the reserve requirement for banks, and/or he can raise the interest rate. Neither option works well for housing. When the Fed increases the reserve requirements for banks, they essentially make the banks keep more of their deposits on deposit, as opposed to being available to be loaned. And of course, we know what happens when interest rates rise. I will be contrarian enough to say at this point a slight increase in interest rates might be useful in terms of pushing some "fence sitting" buyers off the fence. You note I said a "slight increase". I, like many other REALTORS® lived through the late 1970's-early 1980's when then Fed Chairman Paul Volcker raised the reserve rates from 9.6% to 18%--within 8 months! It was not a pretty picture. "Creative financing" was born during this era. However, at that time, many mortgages did not have "due on sale" clauses. They now have them, which would make "creative financing" less doable.
But we currently have the beginnings of inflation, and continued high unemployment. This leads to stagflation, which we experienced during the Ford and Carter administrations (I wasn't in real estate then-I was a college student, but I remember the inflationary aspects of the time.) Stagflation sounds a lot like what it is: a stagnant situation. When I taught two appraisal classes last week, I asked my appraisers what the two biggest problems we had right now in the housing market. They answered: high unemployment and a high supply of housing.
Historically, housing has led the United States out of recessions. Will housing be able to do it this time? If inflation continue to grow, will Bernanke raise the interest rates? What message can a REALTOR® take to a client?
Here's the message I would give a client: If you have a secure job, and you can afford to buy, buy now. Inventory is tremendous and rates are equally attractive. Waiting may cost you dearly, because a raise in interest rates will raise your payment. For the agents who have nervous buyers (those who do not feel that their jobs are secure), I don't know that there is much you can do. Many of the pundits blame high unemployment over uncertainty among employers about health care costs and taxes.
As a REALTOR®, I encourage my elected officials to take pro-business
stances. Depending upon where you live, your local employment picture may be rosier than the national average. Here in North Central PA, the burgeoning gas industry is lowering our unemployment level-it's below the national average, but still somewhat high-but on the other hand, the corporate tax level in my state is high. For those of you who live in Illinois, I can only extend my sympathies-the recent increase in taxes will certainly drive out business. As a REALTOR®, if you have any contact with elected officials at any level-national, state, or local, the message should be that we need to get more people back to work. If you don't have contact, and you aren't active and paying attention-I have to ask you: Why not? As the RPAC saying goes: "If real estate is your profession, then politics is your business."
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