[quote=EconProf]Mercedes7 you say you can put 2/3 of the purchase price as a down payment. This suggests you are getting pretty tired of getting 1 – 3% on your savings, right? This is budging you into the category of possible buyers.
I mention this because it strikes me that the puny interest rate that high-liquidity investors are getting on thier money may be pushing a lot more people onto the buy side–both for residential and commercial real estate.
We are seeing more cash buyers out there, who do the pro forma numbers on a possible purchase and discover they can, even with reduced rental income, make a relatively decent rate of return on a purchase. This applies to apartments, and especially CRE for the more adventuresome. Adds up to one more factor suggesting we are at the bottom of the cycle.[/quote]
Absolutely right, IMHO.
The paltry returns on cash over the past decade (and especially over the past couple of years) is pushing highly liquid entities into buying anything that gives a better return than 0-2%. At this point, almost anything is better than cash, and this is precisely what the Fed/govt/PTB want. They are trying to squeeze people out of their cash positions and into other asset classes, no question about it.
Low interest rates affect demand in two ways. It makes a mortgaged purchase more affordable at a higher price, AND it forces cash into the housing market because investors (especially fixed-income investors who like “safer” investments) can get a better return on an all-cash purchase (then renting it out or flipping it) than in any kind of liquid savings/investment **at this point in time.**
Like SDR said, it’s all about the interest rates/bond market. Everyone is speculating now.
