At this time every year, my family and I do a reprise of National Lampoon's Vacation: We pack up the family truckster for a weeklong drive from Los Angeles to northwest Iowa, where we spend a couple months lakeside. (I should say that, while the rest of the family enjoys the leisure, I am working as always -- just remotely!) The drive across two-thirds of the country offers immense opportunities to take the pulse of the U.S. economy through on-the-ground research -- talking to vendors, locals and other travelers. I am a huge believer in distilling investment ideas from this sort of gumshoeing because, ultimately, business results will reflect the economic activity taking place all around us.
The journey Thursday started in L.A., late in the day, and ended in Las Vegas. Both cities are "sand state" epicenters of the real estate bust and recent revival, and activity here is likely to be similar to that in other boom-bust real estate markets, such as Arizona and Florida -- and, to a lesser extent, the rest of the country.
In Los Angeles, I have recently been discussing the real estate market with several agents that are close to the action, and the dynamic foretells problems. As we all know, mortgage rates backed up pretty significantly over the past month. As a result, for any given mortgage size, an average monthly payment is now nearly one-third higher than it had been at the lows.
According to my agent friends, the back-up in rates is causing a frenzy of activity unlike anything they have seen in recent memory. Buyers are desperately bidding to get purchases done before rates go even higher. Sellers who are no longer under water are desperately listing their homes, attempting to get out before the market potentially tanks on them again. (The clear winners here are the agents, who have not been so busy in half a decade!)
Stock-market pundits are concerned that housing indicators may turn south with the rise in rates, but my view is the opposite. For the next two to four months, this frenzy of activity is going to make housing look great. The sales volume and prices paid will be fantastic, and many will dismiss the fears of a slowdown as "overdone."
The sucker punch will come later in the summer, when this frenzy of activity subsides and the impact of higher rates will really be felt. I am not calling a housing bust. I'm just observing that higher rates should slow down the market, but the timing of it will not be what everyone thinks. So do not get head-faked by strong housing statistics in July and August. Your best bet is talk to as many agents as you can get introduced to, and to use them as your guide to how activity is trending.
Today's leg of the road trip will take me into the great empty desert of Nevada, and then on to Jackson, Wyo., home of the annual Fed fête in August. I'll report on conditions in the Rocky Mountain region Monday.