• Will Japan Hurt Our Housing Recovery?

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    Today’s post comes courtesy of our very own Rick Soukoulis, Chairman and CEO of Intero Mortgage, who always has great ‘big picture’ perspectives.

    I get asked quite often if the nightmare in Japan is going to bring about global economic problems that will halt our recovery and maybe even send us back into a downward spiral again.

    Let me be very clear on this:  Nothing of the sort will happen!

    The tsunami and the nuclear reactor disaster have been devastating to the Japanese, but in cheap generic online viagra the strange ways that global markets work, it will most likely work to actually assist the U.S. economy.

    The first thing to know is that during scary times, there is a so-called flight to quality.  Institutions around the world want to own only the safest bonds, and we are already starting to see huge inflows of dollars into our debt markets.

    Some of it is institutions selling Japanese bonds and buying U.S. Treasuries, and some of it is money that wasn’t invested in Japan, but whose managers want the absolute safest place to put their money.

    I’m not just speculating here.  History shows that this happens over and over again, that nervous money always finds its way into U.S. Treasuries and other debt instruments.

    When the Southeast Asian Banks all started failing in 1997, tens of billions were moved to the United States markets, and all that buying drove our rates down.

    In 1998 when Russia defaulted, the same thing happened. Money flowed out of Rubles and into dollars, and our rates dropped significantly again.

    In 2007-8, virtually every country around the globe had massive financial problems, and despite our housing bubble bursting and Lehman failing, we were still perceived as the world’s number one safe haven.  Hundreds of billions of money flooded our markets, and as you recall, this drove rates down further than anyone had ever seen.

    It was this move that created the unheard of level of 4.5% mortgage rates.

    There was a book called “This Time It’s Different” by Reinhart & Rogoff which looked at financial crises going back over 800 years, and it’s always the same.  Nervous money always goes where it’s safest.

    A secondary aspect will be new revenues for American companies involved in the rebuilding of Japan.  Caterpillar will be supplying earth moving equipment and cranes, Bechtel will be rebuilding bridges and dams, and GE will be working on their nuclear reactors.

    There is always something to worry about, and housing is very sensitive to the slightest changes in the economy.

    But the truly good news is that rates are not going to go up because of Japan, and they are more likely to go down.  This may be a slight stumble for the global recovery, but perversely, all the reconstruction might actually be the stimulus needed to advance

    This entry was posted on Wednesday, May 25th, 2011 at 9:21 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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