Housing market good…for now

National Association of Home Builders said the expectations for the next six months to a year are very positive.

But, how long can it last?

NAHB reported the housing market could plunge into recession if the Federal Reserve offsets the benefits of tax cuts by raising interest rates above 6% by the end of 2019.

Texas A&M University Real Estate Center Chief Economist Dr. Jim Gaines said 2018 is the transition year with the tax law change and inflation expectations.

The general consensus is that rates will start rising. But take that with a grain of salt. Gaines said they’ve thought that for the past two years, and it hasn’t happened, yet. He said interest rates fluctuate based on investor inflation expectations.“The expectations are that inflation is on the rise, from less than 2%, which it’s been running for the last several years, to somewhere maybe around 2.5% or maybe more,” said Gaines.

He said that will bring up the price of everything—including interest rates.

Nationwide, home residential single-family starts haven’t recovered from the 2007-08 economic recession/financial crisis and downturn energy decline. Average annual level is running about 80-85% of what it should be. In Texas, the housing market has completely recovered. In Houston, for the past three years, the housing market has exceeded the long-term averages.

Gaines said the rate of change and the timing of the changes could spoil it. So, 2019 is a big question mark right now.

“It kind of depends on how we really get through this year and whether or not some of the income growth and inflation expectations continue or even grow further in 19, or does it go the other way and decline,” said Gaines.

Creating inflation

The Federal Reserve has announced it will raise the fed funds rate three times this year. The Fed is selling billions of dollars’ worth of bonds and treasuries and other securities they bought during the financial crisis.

There’s a growing demand for new debt—public, global and corporate. Interest rate is the price of borrowing money, so the price is being bid up.

Incomes are increasing.

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