In a few months, I will either be proven right or proven wrong. But I know which side of the fence I am on when it comes to interest rates.My biggest concern for the Denver housing market, which frankly is just sizzling under $200,000 right now, is that we are going to see interest rates spike sooner than anyone thinks.
I heard a respected colleague recently use the "hot shower" analogy.
When you turn your shower on in the morning, the water is cold. So you turn the handle all the way over to the hottest setting, trying to warm things up.
(That's the stimulus package)
Then, a short time later, scalding hot water comes out of the tap.
(That's economic activity)
The Fed's job is to keep economic activity warm, but not hot. As soon as that scalding water starts pouring out of the shower head, the Fed will immediately crank the handle back towards a milder setting, and it will do this by raising interest rates.
Interest rate increases are inevitable, and in this climate they are likely to come faster and be more volatile than any time in recent memory.
(Ditto for inflation, which isn't necessarily a bad thing if you own a fixed asset like a house)
This is why I'm still advising clients to lock sooner rather than later, and buy today instead of six months from now. The hot water will come, it will cause interest rates to spike, and buyers are likely to see their purchase power diminished when it happens.
