Interest rates are jumping up again in light of some disturbing news -- inflation may not be contained after all.

"Declines in worker productivity, coupled with accelerating labor costs, increase the threat of inflation down the road," said Frank Nothaft, Freddie Mac vice president and chief economist. "Still, to keep things in perspective, mortgage rates are currently only about one-half a percentage point higher than they were at this time last year."

But that may not be enough to restart the sputtering housing market.

Fed chief Alan Greenspan's last parting shot before retiring was to raise short-term mortgage interest rates one last time. After 14 straight hikes, mortgage interest rates shot up to a six-week high.

What's troubling is that financial pundits are homing in on wage prices.

The Labor Department announced that employee compensation was up 3.1 percent in 2005. Although that was a smaller increase than in 2004, and the slowest rate since 2001, productivity was only up 2.7 percent.

Inflation-watchers are worried that wage prices coupled with slower output could spell trouble for the economy. Unemployment fell to a 5-year low of 4.7% in January. About 193,000 jobs were added to nonfarm payrolls, the Labor Department said.

You would think that an improvement in unemployment would be good news, but the see-sawing stock market responded by shedding over 150 points on the Dow Jones Industrial Average in two days.

Realty Times believes that the markets are overreacting. Since when are more people with jobs a bad thing? Doesn't that mean there are more people who can buy things? Just look at the way Google was treated by investors when it announced that it paid more taxes than it was expecting. The stock lost 10 percent overnight. As CBS Marketwatch commentator Herb Greenberg notes, "It says more about the speculative nature of the market than Google."

And that's because investors expect companies to show profit improvement every quarter, despite the very real and expensive need to research and develop new products. They are supposed to hit their guidance forecasts on the penny. When they don't, the market rocks its own boat. Google, a fast-growing company has refused to supply guidance for the next quarter.

What does this have to do with real estate? Housing isn't like stocks. In most cases, homebuyers aren't paying cash for the full purchase price. They are leveraging their equity with loans. If a stock goes down 10 percent, that's real money lost, but if a house loses value, it's almost never overnight and never for as much of a loss.

The National Association of Realtors says that since 1968, despite several recessions, the stock market crash of 1987 and some horrific natural disasters like Hurricane Katrina, housing has escalated in price every year. In 2005, housing prices were 12 percent higher than in 2004. While economists expect housing gains to slow to about 6 percent in 2006, that's not a bad return. In fact, it's much more in line with historical gains. Before 2001, house gains averaged about 4.5 percent a year, just ahead of inflation.

Realty Times says this. Remember that equity is built over time, and homeowners can build more value into their homes with improvements, repairs and staging. Don't fall for pundits who want you to buy into fear. Just because you can buy a home with little down, doesn't mean your house is a poor investment if house prices plateau or loses value in the short term. Your home is your castle. Live in it and enjoy it.

Published: February 6, 2006

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.