Could future oil prices and housing market direction be tied together? We are beginning to think future oil prices may dictate a lot of things, including the direction of the housing market.
Up until now, the stock market and housing market has been influenced by the market’s perception around the Fed and 10-year interest rates. How the Fed navigates inflation versus throwing the economy into recession has steered the markets up until now. Of course, food and energy costs are a part of inflation. The thinking has been, either higher interest rates will cure inflation or higher prices will.
Dependent on Oil
There is an old saying in finance that says nothing cures high prices like high prices. This assumes demand will soften for an item once it reaches a certain point. The problem with oil is, we are dependent on it. Not only do we use oil for our cars, but it is also used at many everyday things like clothing, roofing material, etc. It is a very long list.
High prices may not cure high prices because it is a need, not a want. The fear is the Fed may be forced to raise rates higher than Wall St thinks. This would be a double whammy because the consumer is not only being hit with higher costs everywhere, but they will also be hit with rising rates.
This will have an effect on housing prices going forward if this happens. Many believe it is already having an effect. Back on February 26th I wrote about if oil got to $115/barrel I didn’t think it would be good for our economy. In essence, it just felt like anything north of $115 would be a breaking point for the economy. As I write this article, oil futures stand at $119/barrel.
Scary Thing
The scary thing is oil could easily go to $130/barrel or worse. If that happens, $5 plus gas is on the table, and I just do not believe our economy can take that for long. This will also cause the Fed to be more aggressive than they have in the past, and Wall St has not priced that in yet.
The Fed has worked hard to placate Wall St, but the jig may be up soon. Do I feel the Fed has been honest about inflation to this point? No, I do not. But who am I to call them out? It does not matter what I have thought through this process. What I am saying is, time may be out, and they may be forced to deal with this.
It is also possible the Fed has some geniuses that know more than we do. I should hope so. Maybe they have a better handle on this than we think. If they are right, real estate should be just fine and interest rates should settle down within a year.
Lots of Upcoming Economic News Expected
For the next two weeks people will be talking about the Consumer Price Index, the Producer Price Index, core inflation, unemployment numbers, workforce participation, and company earnings. These are all the things that give us clues as to the economy and inflation, and the direction the Fed might take.
For my part, I’m watching oil. I think it’s as simple as that. I’ll analyze the other things once oil prices are under control. Until then, I believe we’re just massaging numbers and fooling ourselves as to how great things are and not dealing with the issues. If we get oil prices down, the Fed has more choices. Failing that, watch out.
If rates rise, it will cost buyers more. Rising buyer costs ultimately hurt sellers because it limits what buyers can afford to pay. That leads to lower price gains, or reduced prices, depending on how soon the Fed acts.
For now, watch oil. If you have real estate to sell, call Brett or Sande Ellis 239-310-6500 or visit www.SWFLhomevalues.com for a free instant analysis of your home.
Good luck, and Happy Selling!