As published in Scotsman Guide's Commercial Edition, July 2005.
Many of us have hypothetical crystal balls, which we use to predict the future. For many, the 2005 real-estate market has looked cloudy. A deeper gaze into our crystal balls shows that it is only a matter of time before we see price corrections in the real-estate marketplace.
Some say that interest rates will continue to increase, prompting a price drop. Ken Rosen, a University of California at Berkeley professor and chairman of the Fisher Center for Real Estate and Economic Development, used his crystal ball to start a hedge fund of real- estate-related stocks. The hedge fund bets against the future of real estate and was established to sell short its real- estate-stock investments.
Rosen invested millions of dollars in an upcoming real-market correction. He believes California’s Bay Area already had a housing bubble, which is now bursting. With the Federal Reserve signaling a rise in interest rates, Rosen and others believe it is only a matter of time before real-estate prices decrease.
Interest rates can offset any marketplace phenomenon. In the past few years, they have sustained historic lows, which have resulted in a flurry of real- estate-purchase financing and refinancing. After Sept. 11 and the Nasdaq crash, Federal Reserve Chairman Alan Greenspan predicted a U.S. recession, so he created a shallow one. He offset a true recession by keeping interest rates low.
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