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PREDICTIONS: Where rates and housing prices are headed

By Brian Brady

Commercial Real Estate Agent with Matthews Capital Markets NMLS 2415712

February 01, 2007 05:46 PM

bhb Do you want to look into the crystal ball through the eyes of Federal Reserve Chairman, Ben Bernanke? Will that help you predict mortgage rates and housing prices for 2007?

The answer is usually buried in paragraph three or four of government reports. The economic benchmark that is oft overlooked is the nominal GDP growth rate. The nominal GDP growth rate includes the effect of inflation. Nominal GDP growth reflects the ability of the US economy to pay our debts. The Fed Funds rate reflects the interest the economy pays on its debt. When the two are imbalanced, runaway inflation or its opposite effect, asset deflation, occurs. When nominal GDP exceeds the Fed Funds rate, we have a capital surplus which leads to inflationary pressures. When nominal GDP is less than the Fed Funds rate, asset deflation occurs. Leveraged assets, notably stocks and houses, decline.

So where are we headed now? Well, the third quarter of 2006 produced an annualized nominal GDP rate of 3.8%, well under the 5% target. This means that if Fed Funds ...

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Rich Jacobson

Fathom Realty West Sound - Poulsbo, WA

Your Kitsap County WA Real Estate Broker

Doggie wanna biscuit?....okay, I'll play "fetch!" ...going over to Hound Dog shortly. Thanks!

Feb 02, 2007 01:17 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Brian,

Glad to see another "money geek" letting the dogs out, or is that bringing them back in?

Feb 02, 2007 03:30 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Call me crazy (and you frequently do), but what you say seems to mean interest rates staying about the same which means a 1% predicted increase in housing sales (which NAR predicts for my market) may be correct.

I await your word LOL

I did not comment on Bloodhound because I had nothing intelligent enough to add :-) But I read it!

Feb 02, 2007 06:39 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

means a 1% predicted increase in housing sales

Not necessarily. I do know that a 1-1.5% drop in rates will have a positive effect on prices. I think the rate cuts are most likely coming. This economy is not bullet-prrof and nominal GDP is slowing.

On the other hand (Harry Truman always wanted a "one-handed economist")... The golbal savings glut Bernanke refers to frequently (made up of the Asian countries, petrodollar recipients, and multi-national corporations with cash suprlus) are keeping long-term rate under control. If the lower oil rpices move through the economy via consumer spending, nominal GDP won't decline and petrodollar recipients will lose some of their surplus...that's econospeak for higher rates.

If the American consumer uses the extra $50/month (from lower oil prices) to pay down debts. lower rates are imminent

Feb 02, 2007 09:30 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

I'm liking the idea of people paying down debts (you may not agree) but is $50 enough to make a difference? If it is, do a post I can hand out!

Feb 02, 2007 09:37 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

I'm liking the idea of people paying down debts (you may not agree)

No, I agree. I may be a drug dealer but I want to make sure they keep coming back, Carole. There are too many"hopped-up debt heads" running around right now. (I know. debt heads...go ahead and use it)

$50 enough to make a difference?

Sure it is. That's $600/year. Remember that $50 is after tax money. if the average American family earns $50K/year, that's like a 1% raise.

Feb 02, 2007 09:52 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

LOL 'debt heads' is definitely a keeper!

That's $600/year. I just thought you'd have to have individuals up at 2% to make a difference. This is good!

Feb 02, 2007 10:08 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

I will be blogging about "Debt Heads" (23 year old kids running around the country flipping homes) and their Dead Head parents, (who ran around the country when they were 23) this weekend, Carole

Feb 02, 2007 10:38 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

I await your words......

Feb 02, 2007 10:58 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

rate cuts will be coming.... by Late April and throughout August... my prediction..... but after that, they will go up. They can't stay low forever and there is more to lower rates. It happened too many times in the last 3 years. Raising the benchmark needs an adjustment. Besides... there are way too many factors not talked about. Sure, unemployment is down.....but wages need to be higher to compensate for home values and the cost of living. This is the main problem. And possibly some rewards for saving or putting money back into the gov't. If we don't act now, we could be doomed in the near future.... a downward spiral. Again, just my opinion.

Sure, there have been ups and downs since I have been in the business since 1992... but as you can see, taxes are increasing.... income hasn't risen enough to keep up, even though minimum wage has gone up. People need to work 2 to 3 jobs in some cases. There needs to be better and cheaper health care and child care to off set a lot of this. Again, my .02

Feb 02, 2007 12:52 PM

Brian Brass

Brian Brass - Guaranteed Rate - Troy, MI

BRIAN -

Better be careful going out on a limb with bold predictions...people might think you are opinionated.

Does this fall in line with the theory a prolonged inverted yield curve leads to recession...requiring cuts.

I continue to hear analysts say "Bernanke doesn't need to do a thing - the market will do it for him".
Yet each month we see a revision on the previous growth findings and as you note slowing nominal GDP.

Bring on the cuts...we'll make the equity lines more attractive and reposition more consumer debt.

Feb 02, 2007 01:49 PM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

Better be careful going out on a limb with bold predictions

Check out my other blog; I call for a 100bp rise in rates; always hedging. Just kidding.

The inverted yield curve theory holds true but bernanke explains it off with his global savings glut theory. The Fed DOES watch the nominal GDP/Fe Funds ratio, Bri. It's starting to unfold.

but wages need to be higher to compensate for home values and the cost of living.

Jeff, that should be the case but I think lower rates will buoy up prices regardles of the affordability factor. Sean Purcell wrote a great post about this two weeks ago. Check it out.

Feb 02, 2007 04:39 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Brian... sure, prices will still rise.... and I will read this article.... but it is keeping many consumers from buying, especially first time homebuyers now... it's harder for them, because the only equity that they can build up is their savings.

hey...on another note.... I have been writing about Nova in some blogs, but haven't seen you around... Cards vs Nova today at noon baby....

Feb 03, 2007 12:07 AM

Stan Lee

MortgageSum - San Mateo, CA

mortgage rates prediction poll

Jul 14, 2008 03:15 PM