The Counterintutivity of Interest Rativity

In this time of financial turmoil (and, come to think of it, doesn't that phrase apply to any time?) pundits will pundize endlessly that for real estate to recover, interest rates must fall. Well, here's a counter-intuitive observation.

I'm old enough to have lived through the Carter years which, at the peak, suffered 18 percent inflation in one quarter of 78 or 79 (I forget which one and I'm too lazy today to look it up.) Rapid price growth has one dramatic affect on buyer behavior; it makes you buy now instead of waiting.

I remember going shopping with my wife when I was a young man with a full head of black hair and buying a rocking chair that we didn't need. Why? Because it would cost a lot more the next time we went out.

This is going to happen to real estate now, I think. Interest rates are going to climb from the 4.875% I just paid for a mortgage a few weeks ago to the 5.2% of today and keep climbing until they reach a natural, un-federal-reservalized number.

Conventional pundit-wisdom (an oxymoron?) says this will put a spike into a nascent real estate recovery. I say the opposite. In anticipation of rising rates, people sitting on the sidelines are going to jump in anticipating future higher rates. Home purchase activity will increase from here ... and the pundits will drop their jaws in amazement.

Again, we'll see just how smart I am ( ... or not).