Tuesday, June 16, 2009

Interest Rates and Gas Prices...What else for a Perfect Storm?

There has been a rather disturbing trend happening over the last few weeks that I have an uneasy feeling may effect the slight bounce in our real estate market.

One of the things that brought buyers back, was obviously the historically low interest rates, and to a lesser degree, (although some would argue this point) gas prices. I have had this discussion before, and there are people who are adamant that if a second home buyer can afford a 200k plus Sullivan County home, and a place in NYC or surrounding area as a primary home, and afford all the expenses that go along (two heating bills, two tax bills etc.) a sixty cent jump in gas prices will not effect their bottom line.

I disagree. Now I'm sure there are people out there who pay no attention to gas prices, but the vast majority of my buyers, are stretching for the dream of country home ownership. An extra fifteen dollars a trip, translates to $60 a month. If you added $60 a month to payments on a 30 year fixed at 5.85% (the current rate) it would be a difference in price of $14,000. That is a pretty big difference in buying power.

Now add almost a whole point onto an interest rate, and you can see how timid buyers may duck back down into the foxhole.

I am normally a pretty bullish guy when it comes to our real estate market. But even I started to scratch my head at some of the prices back at the end of '07 and into '08. We have all witnessed a pretty major correction. (20 to 30% percent by some estimates). I still truly believe that there are some good bargains out there, but this belief that we have reached bottom?...I am not so sure.

I think if interest rates stay around this level, and gas prices do the same, we will stay at status quo. I am just concerned that one more event...one more big corporation collapse, or 400 point Dow drop, or a big jump in unemployment...could freeze this market again, and we may not see signs of buyers picking themselves up and dusting themselves off, until the fall.

Hope that is not the case. Right now in my personal real estate world, things are moving right along. Maybe it is paranoid to look over one's shoulder. I just feel we may be at a cross roads and the next few months will really determine which way we move.

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