Everybody is waiting to see what the Fed policy will be over the next 3-12 months.  Here are my thoughts.

The Fed is playing a waiting game right now.  Inflation is still a real threat but growth is slowing down.  The last reading on year-to-year Core CPI is 2.9%, which is above the Fed’s publicly announced target of 1-2%.  If inflation stays above 2% long term, the Fed will almost certainly raise rates.

Right now, the Fed is waiting to see whether a slowdown in growth, fueled by the housing sector, will be enough to cool inflation.  If the growth slowdown stalls inflation, the Fed will continue to pause or to cut rates.

So there is a two-dimensional vector that the Fed is watching:

Outcome 1: High growth, high inflation - Raise rates
Outcome 2: Low growth, low inflation - Lower rates
Outcome 3: High growth, low inflation - Hold or lower rates
Outcome 4: Low growth, high inflation - Economy screwed, but Fed must raise rates

The Fed is hoping for Outcome 3, but 1 or 2 would be okay.  Wall street is hoping for 3 and is pricing this into the Dow.  I think Outcome 3 is extremely unlikely.  Outcome 4 is what people should be worried about, in which case the economy stalls at the same time as the Fed having no option but to raise rates.  This will likely send housing and the U.S. economy on a downward spiral.

I would assign probabilities of the four outcomes as follows:

Outcome 1: 35%
Outcome 2: 25%
Outcome 3: 10%
Outcome 4: 30%

This matters to real estate because it is impacted both by economic growth and interest rates:

Outcome 1: Good for real estate owners.  Bubble does not pop.  The question is how long can this last because Fed will have to raise rates.
Outcome 2: Medium outlook for real estate owners.  Rates stay low and hold up prices but real estate falls a bit.  This is the soft landing scenario.
Outcome 3: Best scenario for real estate owners.  Rates stay low and growth keeps housing afloat.
Outcome 4: Worst case for real estate owners.  Economy tanks at the same time the Fed is forced to raise rates and sends prices even lower.

Prospective real estate investors care about the part of economic growth that is *orthogonal* to rates.  If rates go up, we have worse financing but prices drop.  If rates go down, we have better financing but prices stay higher.  So the impact of rates should matter much more if you currently own property.  It does, however, affect future selling potential, in which case I would rather buy with high rates and low prices.

A gold investment will pay off huge in Outcome 4, which will be the exact outcome that will create an incredible buying opportunity in real estate.  Hence my bias towards gold.  Nobody else will have money because they lost it in real estate or the stock market, so l will be one of the few buyers.

Real estate investment opportunities will be best in 4, worst in 3, and medium in 1 and 2.  Investors and the Fed will just have to wait and see.