Love's Real Stories

If you want to see into the future, you just have to know where to look. For instance, if you’re going to see into the future of the real estate market, you need look no further than right here. After years of researching magazines, newspapers, and websites for the most reliable real estate prognosticators, I have discovered the best one right here in the North Valley.

The prognosticator of whom I speak, AJ, has a bad track record for predicting the future of the real estate market. He’s been wrong ten years in a row. But that’s the key. AJ is so reliably lousy, all you have to do is listen to his predictions, and then go with the opposite.

I called AJ.

“So what you are telling me,” said AJ, “is that people perceive my conjectures and estimations of market projections, which I base upon thorough research and data compilation, as somehow inaccurate?”

“Yes.”

“In what way do they express such a perception?”

“They say that you are wrong,” I said.

“Preposterous,” he said. “My predictions are many-factored and should not be dismissed in one broad stroke.”

I reminded him of his prediction for the market in 2006, the worst year for a downturn in the history of the market since the Great Depression. His prediction at the time was: “Prices are rising and they won’t stop now. The three most important words in real estate for 2006 are buy, buy, buy.”

AJ admitted to a “slight inaccuracy” in that prediction.

“My words were taken greatly out of context, which caused a knee-jerk reaction among the less enlightened,” he said.

I asked if by “knee-jerk reaction” he was referring to the flaming arrows stuck in his door, and the ‘yelp’ comments on the internet which had to be deleted because of foul language and violent intent.

“Quite unfortunate and very unenlightened.” he said.

I reminded him of his 100% wrong-prediction record from that time until now.

“My words have been taken out of content, and greatly misconstrued,” he said.

I asked him his prediction for 2014.

“The overall economy cannot sustain the slight rise in the real estate market we saw last year. Activity will decrease and we will experience devaluation. I regret being the bearer of bad news.”

Coming from AJ, that’s good news.

I called my friend, The Finance Guy.

“Hey, did you hear The California Association of Realtors published their 2014 California Housing Market Forecast?” I asked.

“But of course,” he said. “I’m fully aware of their so-called forecast. I was given access to the report prior to its publication, and I was consulted as to the level of its accuracy and the caliber of the information therein.”

I shouldn’t have been surprised. The Finance Guy knows a lot. My friend J.P. says The Finance Guy possesses so much knowledge he’s full of it. And several of my friends are so impressed they refer to him as Mr. Know-It-All.

I told The Finance Guy the 2014 Housing Market Forecast indicates we will continue to see improvements through 2014. The C.A.R. President said, “As the economy enters the fourth year of a modest recovery, we expect to see a strong demand for homeownership as buyers who may have been competing with investors and facing an extreme shortage of available housing, return from the sidelines.”

“Rose-colored glasses, my boy,” said The Finance Guy. “Your trade organization, this C.A.R., is foisting a distorted view upon you and your kind, as they whistle through the proverbial graveyard.”

“Foisting?” I said.

“Where was your precious C.A.R. when the housing bubble burst in 2006?” he said

“Actually,” I said, “C.A.R. Chief Economist Leslie Appleton-Young warned us in 2004 and 2005 we were headed for a serious downturn. And weren’t you still bullish on the market in —“

“Let’s focus on the here and now, shall we? Have you seen the stock market trends lately? Have you heard of the Government Shutdown?” He delivered an impressive monologue about the government’s questionable fiscal, monetary, and housing policies.

“And actions of the Federal Reserve,” he said, “will ensure a higher interest rate environment, which will have a negative impact in the housing sector.”

I called my friend J.P. “Hey, did you hear The California Association of Realtors published their 2014 California Housing Market Forecast?” I asked.

“Yeah,” said J.P., “Leslie Appleton Young said the market continues to improve, and we’ll see moderate price increases in 2014.”

I asked him about the effect of the Government Shutdown, questionable governmental fiscal policies, and a higher interest rate environment.

“Hmm,” said J.P. “Have you been talking to Mr. Know-it-All again?”

I attended a big high-level conference in Washington, D.C. where people-in-the-know delivered the news on the U.S. economy. Bankers, investors, and government representatives were rubbing elbows, shaking hands, and generally having a great time. When real estate became the subject of discussion I jumped right in with both ears.

For all the participation I contributed, I might as well have been miles away. Truth be told, I was indeed miles away. I was in California, staring at my computer screen witnessing the goings-on in Washington, D.C., via a “webinar.” I (and many others I assume) loomed above the conference in a sort of cyber-gallery, watching the bigwigs hobnob.

The real estate portion of the conference boiled down to this:

Real Estate isn’t as hot as it’s been cracked up to be. Reports of double-digit price increases are true, and people have been expressing worries of another housing bubble, but set those worries aside.

“We are of the view that housing is continuing to grow, but we are not of the view that it is robust,” said the FHA guy. He said real estate is not the economic driver it was a decade ago. Yes, home prices have moved upward quickly, but those gains are just a bounce-back from the severe drops of the recent past. Home builders are on the scene buying lots and building, but they’re going about it cautiously. Building-related jobs are a slow-grow, and land-buying is minimal, so construction hasn’t been the big economic driver we might expect. He said when construction picks up momentum, it still won’t hit the frenzy of the boom years; jobs will be fewer than might be expected, too.

Rising interest rates will not shut down housing and economic recovery. Fannie Mae economists did a study recently on the correlation between a sharp increase in mortgage interest rates and rising home prices. Their study shows there is little relationship there. When interest rates go up, the number of home sales may go down, but prices are still likely to keep rising.

As a result of their study they were also very confident-sounding in making this prediction: “We don’t necessarily expect interest rates to surge again, and we don’t think any rate rises will be as sudden as we‘ve seen.”

It is a really great time to buy. Even though housing prices have bounced up from their floor of a few years ago, they are still down. Even though interest rates have moved up recently, they are still extremely low compared to historic norms. Buyers have it good.

The American Dream is alive. Homeownership rates have fallen significantly from the boom years, and after the financial crisis, some prognosticators predicted America would become a predominately rental society. But the economists at this conference say many people who are renters now are the same people who lost their homes in foreclosure and short sales, and those people will buy again. In our society, the drive to become a homeowner remains unchanged.

I returned home from the conference without difficulty, and overall it was a good journey. It’s handy when you can leave your seat, open your own refrigerator, and sing out loud, while still hobnobbing with the bigwigs.

A big whoop went up when the announcement was made: “Quantitative Easing to continue!”

I called a finance expert.

“What is Quantitative Easing?” I asked.

“A form of Communism,” she said. “It’s Socialism, at the very least.”

She told me Quantitative Easing is a Federal Reserve tactic to manipulate private financial markets; the Fed is printing money it doesn’t have and playing loose with the cash, giving people the false impression of a strong economy so they’ll borrow more money and buy more stuff.

“And furthermore,” she said, “Federal Reserve Chairman, Ben Bernanke is like the Wizard of Oz. He hides behind his smokescreen curtain and bellows grand proclamations that send people scattering in fear.”

For example, she told me, Bernanke recently hinted that it may be time to “taper down” Quantitative Easing. That hint was perceived as a proclamation fearful enough to send people scattering from the stock market like the Cowardly Lion, and to send interest rates skyward.

“So how does Quantitative Easing work?” I asked.

The Fed buys up bonds and securities, she told me, to keep them at an inflated value, which lowers interest rates. She said the Fed has been spending $85 billion a month on buying these bonds and securities.

She said when the Fed pulls out of the bonds and securities market, people will be left holding the bag, interest rates will soar, people will lose jobs, and we’ll suffer runaway inflation.

“The Fed calls it ‘stimulus,’ she said. “I call it ridiculous!”

I called another finance expert.

“Look,” he said, “Quantitative Easing has built our economy back up from the devastation of the financial collapse of 2008. The point of the program is to lower long-term interest rates, so people can afford housing loans. Housing is the engine that drives the creation of jobs and economic vitality.”

He said Quantitative Easing has stabilized our economy because people believe in the Federal Reserve’s management of interest rates.

“Quantitative Easing is responsible for a better housing market, more jobs, and a rising stock market,” he said, “and I’m glad the Fed decided to continue it. Ben Bernanke should get a lot of credit for keeping a steady hand.”

I told him Bernanke had been compared to the Wizard of Oz.

“More like Clark Kent,” he said, “with an “S” on his undershirt.”

“S” is for ‘Stimulus’ no doubt.