(RightWing.org) – The US real estate market could be in for rough times. Experts say an “epic” change is beginning, and it could be a bumpy ride for both homeowners and those who want to get on the property ladder. Right now the housing industry is suffering badly from the Federal Reserve’s policies. The correction some are predicting could offer opportunities as well as risks.
On December 14, real estate investor Grant Cardone told Fox News he thinks the industry is at the start of “the greatest real estate correction in my lifetime.” What Cardone means is that house prices are poised to fall.
At the moment, the Federal Reserve is keeping interest rates up in an attempt to slow inflation. Mortgage rates are tied to the “base rate” set by the Fed, which hovered just above zero for years after the 2008 financial crisis –- fueling an explosion of cheap debt –- but has risen sharply over the last three years and is now between 5.35% and 5.5%. That still isn’t very high in historical terms, but for a country addicted to borrowing it’s painful.
It’s particularly bad for anyone who wants to buy a home. The years of cheap mortgages pushed house prices up remorselessly; now prices are still high, and those affordable loans aren’t available anymore.
Now there’s light at the end of the tunnel. The Fed isn’t planning any more rate rises and is even considering when to start cutting the cost of borrowing. Conventional wisdom says cheaper loans will start pushing prices up again, but Cardone disagrees. He thinks falling interest rates will bring prices down; he told Fox “When interest rates come down, mortgage applications will go up and people will start selling their homes.”
It sounds like Cardone is basing his theory on the laws of supply and demand; with more houses on the market, prices should fall. That could be great news for anyone who dreams of owning a home but is shut out of the current market. It could also be bad news for sellers who find themselves underwater on their mortgages.
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