COLLEGE STATION, Texas (recenter.tamu.edu) – Dr. Mark G. Dotzour, chief economist at the Real Estate Center, expects foreclosure rates to be higher than historical averages over the next five years because of the massive increase in higher risk mortgages.
According to Dotzour, one of three events is likely to cool the speculative fervor. First, the stock market could begin a sustained rally that would bring investor focus from real estate back to stocks.
Second, the Federal Reserve could raise interest rates high enough to shut off all speculative investment (not just real estate but also commodities, hedge funds, fine art and so forth). But Dotzour doubts the Fed can raise rates high enough without setting off another recession.
Third, the federal banking regulatory agencies could issue strong regulations to limit higher-risk lending. Ultimately, this is what Dotzour thinks will happen.
“Until then, the frenzy continues,” Dotzour says. For more news on this topic, see http://recenter.tamu.edu/news/52-0705.html.