Thursday, March 1, 2007
Follow the bouncing globe
Last Tuesday's global stock sell-off seemed to be settling down after reassuring remarks on Wednesday by fed chairman Ben Bernanke, until this morning. I've followed the news with great interest the past couple of days. What I'm being asked by my clients is, "how will this will affect the real estate market"? Well I haven't got the answer, and from what I've read neither do the "experts". My intuition says that the real estate market will react to fundamental economic changes, more so than dips and spikes. I've learned that the dips can sometimes be okay for real estate too, as they may have the effect of holding down mortgage rates, and drive stock market investors toward less liquid and less volatile brick and mortar, raising demand. The news story is indeed playing out by today as being one about stock market volatility, where waves of panic mutate into buying opportunities. The interesting underlying context, which many journalists noted, is about the great influence of remarks made by retired Fed Chairman Alan Greenspan, and transmitted to a conference in Hong Kong, where he said that he could not rule out a recession in the US later this year.
Those remarks were widely viewed as the catalyst for the global plunge. It is amazing to me as to how much weight this man's opinion still carries. A respectful, if not worrisome, tribute to his intellect and candor. Perhaps it characterizes too, the spill over effect of a more general lack of confidence internationally with the credibility of facts which spin out of the political machinery in Washington, DC. Equally amazing is how lemming-like the behavior of wealthy, smart, well educated investors can actually be. What fundamentally changed Tuesday? Mr. Brenanke's comments have been generally more up beat, he said on Wednesday:
“We are looking for moderate growth in the U.S. economy going forward...there’s a reasonable possibility that we’ll see some strengthening of the economy”
Jonathan Miller posted his take at Matrix, which is a more economically educated observation on the matter, than my own intuitions, regarding the real estate economy:
"...if the underlying economy doesn’t change significantly and more people become more risk averse, we may see more movement to safety like we did yesterday as people move from stocks to treasuries. Treasury prices would go up, and as a result, yields would go down. As yields go, so do mortgage rates, helping temper growing damage caused by foreclosures and limiting the future effects of tightening underwriting guidelines."