The comments below are quoted from a recent speech by Ben Bernanke, a member of the Federal Reserve Board of Governors...
"Looking forward, I am sure that the Committee will continue to watch the oil
situation carefully. However, future monetary-policy choices will not be closely linked to the behavior of oil prices per se. Rather, they will depend on what the incoming data, taken as a whole, say about prospects for inflation and the strength
of the expansion. Generally, I expect those data to suggest that the removal of policy accommodation can proceed at a 'measured' pace. However, as always, the actual course
of policy will depend on the evidence, including, of course, what we learn about how oil prices are affecting the economy."
In short, the Federal Reserve knows that there will be an impact. But no one knows how big and how fast. During the oil embargo of the 1970's gasoline prices doubled several times over a matter of months. The effect was dramatic and sudden. It was difficult to adjust, because things were happening so fast.
This time around, it appears that the price climb will be gradual and steady, thus allowing the Federal Reserve and the government to make adjustments as they go, by examining economic data on a monthly basis. At least that is what they are hoping for.
They know that the economic climate is changing, but they are hoping that it will be slow enough to control.
This week as I contemplated my own reaction to the changing economic environment, I felt compelled to encourage you to give some serious consideration to your personal economic circumstances. If you have a large percentage of debt relative to your income, you should take steps now to eliminate as much of it as possible. Prepare yourself so that you will be protected against unexpected economic upheaval.
Being debt free, or having a very low debt to income ratio is the best way to protect yourself in an unpredictable and volatile world. As we learned on September 11, 2001
things can change dramatically in only a few hours. If you put it off, you may not have enough time to get it done.
The average person needs 4 to 5 years to pay off their
outstanding personal debt, not counting their home. In today's world, it will pay to get started now. I have made it my primary objective to pay off my personal debt over
the next year or two.
If you currently own rental properties, be sure you have cash reserves for future emergencies.
But how might all this economic stuff affect real estate investing?
The interesting thing about real estate investing is that even bad economic conditions tend to have a silver lining. There is a cause and effect relationship at work in any
given economy, whether it is considered a "bad" or "good" economy.
In good times, such as we've had the past 8 years, retailing or flipping for cash was the hot ticket, due to high demand for housing and the ability to sell properties quickly. In recessionary times, higher interest rates and lower housing sales fuel more seller financing, and rental properties flourish. Of course there are always exceptions to the rule, but generally speaking this is the case.
As interest rates got lower, rates of return for traditional investment vehicles went lower and lower. The result? More and more money poured into real estate lending.
Hard money and other types of conventional real estate financing programs expanded drastically, making millions of dollars in new funds available for real estate investors.
As housing sales reached record levels, home sellers began seeing a boom in housing prices. It has truly been a sellers market since rates fell below 7%. What happened to
investment property? During the past 5 years of an investing bonanza in Atlanta,GA prices for investment properties have doubled and even tripled. 3 bedroom 1 bath junkers were selling in 1999 for as little as $25,000, even in liveable condition. Today, that same type house regularly sells for $65,000 (or more) before repairs.
Going Forward:
Rising rates will have a positive effect for investors, by slowing housing sales even further. As sellers get fewer solid offers property prices will get softer. Rising rates could fuel more short selling of foreclosed properties, and this trend is likely developing now.
Foreclosures may eventually get to levels not seen since the late 1980's, due to high levels of mortgage debt among homeowners, who in many cases, have mortgaged all of their equity to pay other bills.
If rates get above 7%, you can dust off your creative financing books, as seller financing will increase. Rising rates mean rising monthly payments. This will eliminate the borderline buyers from the housing market. They will start moving back
into apartments and rental houses. Vacancies will decline, rental rates will increase.
If rental rates increase, cash flows will increase. Rental property will be back in style with investors who abandoned rentals and focused on selling for fast cash in a hot market.
Companies that sell investment property can expect growing demand for rental grade properties. While it is still very early in the cycle, I believe this shift is already under way.
Economic recessions are boom times for smart investors who are positioned to take advantage of the situation. I am not predicting a recession per se' but rising oil prices
and interest rates will eventually have a big effect on housing.
Be ready to take advantage when the opportunity comes.
You have plenty of time to plan for it now.
5 Simple Rules for A Great Job Interview Many years ago, when I was a young job-searching greenhorn, I ventured to New York City to take a bite out of the big apple of opportunity. When it came to find...
Tips On Hosting a Christmas Tree Trimming Party A tree trimming party can be a great way to get a holiday chore done while enjoying precious time with your family and friends in a casual atmosphere
Lower Back Extension Exercise Reasons for exercising your lower back and example with instructions of a lower back exercise.
Life Management Skills for Greater Happiness "Circumstances are the rulers of the weak; they are but the instruments of the wise." --Samuel Lover One of the most common complaints people have these days is...
Confidence Building For Junior Golfers One of the challenges about being a young person is dealing with what feels like is a constant comparison to other people. This is true at school, in one's soc...
Writers Block is No Longer a Problem "If you're like me, than I'm sure you're pretty familiar with the well-known writer's block. From time to time, when you have to start writing something, be it ...
$12 And 90 Minutes To Change Your Life Have you ever listened to self hypnosis tapes? Or listened repeatedly to certain music that carried a specific message? Or what about, have you attended weekly ...
Search Engine Optimization and the News No matter what industry you're in, at some time or another there's going to be news that will impact your business or industry. When someone hears about a topic...
Blue Wild Flowers for Your Garden Planting wild flowers in your garden, or simply scattering wild flower seeds around an area of your yard are both ways to take advantage of Mother Nature's trea...
Baby Shower Centerpieces That Double as a Gift! Here you will learn how to make and where to purchase your baby shower centerpieces. As the centerpiece is the focal point of the baby shower, it is very import...
Select a Niche Market for Ecommerce Selecting a niche market is one of the first critical steps to successfully establish your online business. Read this article to discover why a niche market is ...
Print this page