[quote=Jazzman]All things being equal, you’d expect price to rise with low rates (and that seems to be happening now), but prices are affected by supply among other things, and I’d guess the supply (expansion) of credit as well. With so many distorting factors, it doesn’t follow that declining interest rates over the last forty years, hasn’t had some affect on prices, or that somehow the reverse is made true, and therefore we should all buy now. With no savings, no equity, still over-priced homes, and a dependence on low cost mortgage debt is it any wonder we’re still scratching our heads over conventional wisdom?
The other baffling notion is that price is no longer relevant, since the net income (aka affordability) is what counts. So why the fixation with price at all, since it no longer sits to the right of the ‘equal’ sign? After all, your job’s salary isn’t advertised as a lump sum. On the other hand, if memory serves me correctly a home is a manufactured product, has a shelf life, and the parts that go into its making depreciate. I think it is a mistake to ignore this. If this is all about wealth building, you’d be better off investing in a good education in the long term, than an inflatable home.[/quote]
I disagree with some of these assertions:
Price is ALWAYS relevant. And prices are better now in SD County than they have been in eight years (ten years in some areas).
Your job’s salary IS advertised as a “lump sum” in the form of gross annual pay.
PART of the value of a home (if not a condo/PUD) is manufactured. The other part of the value lies in the value of the RE is sits on. In CA coastal communities, this “land value” can constitute 90%+ of the value of the “home” which sits on it. Without the “fog-a-mirror-get-a-mtg millenium boom” we now have in our rear view mirror, homes WOULD HAVE appreciated slower and steadier EVERYWHERE in the country. Instead, in most areas, they went up in “value” drastically and then summarily crashed when the “loose lending” party was over.
If one has to “invest” in a “good education” in the form of taking out a typical 6-8% (nondischargeable) student loan, then they are destroying their future “wealth building” activities and also, if young, destroying their ability to support a family while still young enough to have one. If they invest in RE and can’t make the payments anymore, they can give their lender a deed in lieu or allow their home to go into foreclosure. After three to seven years, they may be able to qualify for another residential mortgage.
The only way to “recover” from an unpaid student loan is to pay it off (incl ALL deferred interest) or die. And dying is only successful in this regard if the borrower had a gov’t-backed student loan. Those with “private” student loans (the majority of SL borrowers) will have claims upon their estate entered by their SL lenders and Sallie Mae.
I understand you were frustrated because you couldn’t find what you wanted for <=$1M in coastal CA, Jazzman, so decided to "retire" elsewhere. But because YOU thought the RE you looked at (and made offers on?) was overpriced (and likely sold to someone else) doesn't make it so. RE is worth only what a buyer will pay for it. Not EVERYONE who is a RE buyer today has "no equity" and "no savings." That's why you were in such "good company" out in your coastal CA trenches-of-choice as an "all-cash buyer."
If the $800-$1M listings in coastal CA were listed in a climate of 7.5% + fixed MIR's, you, as an all-cash shopper, would be running up against the same problem (except you and your "competitors" would likely have MORE cash to shop with, due to higher interest rates paid to savers). In a higher interest-rate RE shopping climate, a buyer who needs a mtg is simply bumped down to shopping the next lower "tier" of properties (size and/or area). It doesn't mean they won't buy. It means they will buy what they can afford. If they don't like what's on offer in their price range, they will rent in SD County or move to a lower-cost county or state and attempt to buy a home there.
The homes in the choice areas you were shopping in were never meant to be a "mass-consumer product." They are purchased by buyers who fully appreciate their uniqueness and exactly where they are located. If you don’t appreciate these factors enough to pay the price to own them, then they are not for you.
That’s the way it’s always been and it will never change.
