Double-digit mortgage rates on horizon?

At a recent real estate conference, I found myself standing next to Richard Williams, a Century 21 Realtor from the Atlanta area, who had founded something called Clickit Inc., which provides flat-fee pricing for sales and listings. I would say we chatted, but Williams is a born raconteur and I mostly just listened.

After a while, a young man from New York joined us and in the course of the shifting conversation, the Big Apple dude wistfully noted he was renting an apartment but considering buying a condo. Williams turned his attention to the young fellow. "Now is the time to buy," he exclaimed.

The reason for Williams' emphasis on buying now? Was it because housing prices had gotten so low that good deals were everywhere? Actually, no. Williams strongly suggested to the New Yorker he should make his investment sometime this year as expectations are that interest rates were bound to rise and wouldn't stop climbing until they hit double digits. That would make any future purchase considerably more expensive than it would today.

I, too, expect interest rates to start heading north again, but double digits seemed far out there -- not in terms of a time line, but psychologically.

Williams rationalized that at some point in the near future, the economy was going to elevate very dramatically, which would raise the specter of inflation. If that happened, the Federal Reserve would push up interest rates to keep inflation under control.

I didn't disagree with that scenario. However, I don't believe the economy, when it does turn around, will take off like a rocket, so the government's need to contain a budding inflationary climate would be moderate at best.

There are other factors to consider as well.

Interest rates have been kept low since the short recession at the turn of this century, and this was one of the causes of the housing bubble that lasted until 2007. Once the economy stabilizes, I figure the Fed might want to raise interest rates, thus slowly bringing them back to more sustainable levels, something like 3-4 percent.

Then there is the massive pumping of stimulus dollars into the economy.

Globally, the first major nation to experience economic recovery has been Australia, and there is already speculation interest rates will start to rise there. Now, tell me if this doesn't sound familiar: as the Wall Street Journal reported, Australia's recovery comes at a time "when huge amounts of government stimulus are still coursing through the Australian economy, raising fears of higher inflation in the years ahead if the central bank doesn't start raising rates fairly soon."

All those stimulus dollars have to come from somewhere. Sure, we could just print more money, but that would be hyperinflationary, so the federal government, instead, borrows it, which is less inflationary. ...CONTINUED

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