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Jim Grant on the Fed

May 7, 2012

Jim Grant is a recognized expert on interest rates. His conclusion in this interview that the Fed is price-fixing in the very important —maybe most important — aspect of interest rate prices is dead on. When asked what to invest in, in this difficult investment environment, Jim suggests residential real estate in Phoenix. He is right with that recommendation, except for the latest developments in Phoenix real estate that I covered in my post, “Slow to Learn”, from April 12th.

I have been asked if my April 12th blog post was an argument against those who claim the real estate market has finally reached a bottom. That is not necessarily the case. I think there are many factors to consider if you are investing in real estate. There is still a lot of real estate going into default and an overhang of potential foreclosures. There are many cash buyers, many, many more than normal, which tells us there are a lot of investors and not as many traditional home buyers. And, mortgage rates have never been lower; this morning’s 15-year fixed mortgage rate is down to 3.02 percent.

On the other hand, we are buying real estate now because of how far it has fallen in certain markets and we feel it is a hedge against a devaluing dollar. Grant is right in his assessment: when you can pay about half the price of what it costs to build a new home, that is a telling sign.             

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