The rise of interest rates is the single factor most likely to end the current housing boom, according to an informal Inman News survey.
Asked, “What single factor is most likely to end the current housing boom in your area?” about 55.1 percent of respondents said rising interest rates, 23.6 percent said rising home prices, 6.7 percent said natural disaster or terrorist attack, 5.6 percent said the current housing boom will not end, another 5.6 percent said other factors were most likely to end the housing boom, and 3.4 percent said there is no boom in their market.
An “auction mentality on the part of buyers and agents,” stagnant or declining employment numbers, declining purchasing power, and an ailing local economy were also cited by respondents as possible factors that could end the housing boom.
Michael Blomquist, president-broker of Michael Scott Properties Inc. in Los Gatos, Calif., said, “I am amazed at the ease in lending practices. This recovery reminds me of being stuck in the mud. Instead of waiting for the tow truck, the Fed and government want the consumers to keep the foot on the gas and continue to bury themselves deeper.” He said the variety of quick-qualifier loans and variable mortgages “have us poised for another crisis that will dwarf the prior (savings and loan) crisis.”
Another respondent said, “Remember the early 1990s? When this market crashes (and it will crash hard) we will see foreclosures in epic proportions. Lending institutions will take record losses.”
Patricia Glass of Windsor Capital Mortgage Corp. in Corona, Calif., said home prices are already impacting Southern California markets, as residents are moving out of Orange, Los Angeles and San Diego counties to buy homes in other areas with cheaper home prices. “We can see a huge increase in traffic on our highways,” she said.
Another survey participant said low interest rates “resulted in a feeding frenzy in a market that is land-poor. As a result new construction moved further out while prices for closer-in homes rose to ridiculous heights, with some locations seeing a 50 percent increase in less than three years.” The respondent said rising interest rates are likely to increase the inventory.
Charles Graham of Bud Graham & Associates in Monterey, Calif., said that the lower end of the real estate market “is much more connected to interest rates and prices and general business activity, and is going to be directly influenced by the American economy as it redefines itself.” He said time will tell if buyers were wise to take 100 percent loans “at the peak of real estate activity.”
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