Inflation, Interest Rates and Real Estate

I'm no economist, I'm a Real Estate Agent. I see what is happening in the markets that I pay attention to and that's what I know. Its this: For now prices of real estate are holding pretty strong given the relative rise in interets rates. Now there is certainly some lag time between the change in the rates and prices due to the bond like nature of real estate (i.e. price and rates are inversly proportional because real estate is so commonly leveraged by mortgages). However that's not the only factor here. You see, prices of income properties are more closely tied to rents than they are to the cost of money. Everything that I've read says that rents are going up. I consistantly watch rents in Bakersfield and here in San Francisco. I watch vacancy rates and I watch the job market (especially the tech market since my former life was as a software contractor).

The amatures right now are concerned about what prices of properties are going to do in the short term so they are waiting holding off to buy or worse they are buying with risky adjustable rate mortgages. The pros are doing the same as they always do, they are buying the good deals and locking in income streams for the long term.

And Think about this: the people who will be getting killed by those negative amortization and adjustable rate loans will be selling at todays prices to the pros. They'll sell their nice single family home to a guy that was hording his cash and then the'll go and rent somewhere. Maybe rent a house, maybe rent an apartment. they'll have to do it. That is the sad part of the story, however the truth of the matter is that there will continue to be more and more people renting in the near future which means lower vacancy rates and higher rents. All of this is good for the savy investor who has the cash now to lock into a long term investment.

So will prices of real estate hold strong, will they rise slowly, or stay flat or fall? Who really knows. The short of the long is that regardless its a great time to invest in real estate. People who buy good deals today will lock into a (still) historically low interest rate on their loan, and will ride a wave of increasing rents. Its really what all of these baby boomers have been dreaming of. An easy way to latch on to a passive income investment, and ease themselves into retirement over the next 5 to 10 years.