Debate: House prices will not reach their bottoms until

[anxvariety]

House prices will not reach their bottom until interest rates rise.

General statement, interested in different perspectives.

[SK in CV]

Already happened. Unlikely interest rates will rise until prices move up sharply. But they’re already off the bottom.

[Coronita]

Let’s face it. Does it really matter now?
Rent is more than ownership with a ridiculous low rate. Waiting 5years more on rent, doubt one would come out ahead. Rates are gonna stay low per fed action

[bearishgurl]

anxvariety, I would suggest if you want to buy a property (for occupancy or rental), you should get out there in the trenches and start making offers.

The holidays are an EXCELLENT TIME to make a deal. However, unless you have all cash, you should steer clear of the plain-vanilla flipper-type properties that don’t cost much to rehab and put back on the market or enter into rental service or you will find yourself competing with the investors’ offers.

“Flipper/investor types” tend to gravitate towards SFR listings with all or most of these features:

-incorporated area (w/i city limits – to have steet lights/storm drains etc). This is especially important if the property will be a rental;

-single story;

-$175K to $400K;

-no Mello Roos (if property is to be a rental);

-mostly flat lot of 4500 to 7500 sf;

-no extensive concrete repair or structural repairs needed;

-currently “hot” rental zip code within 3 miles of professional white-collar jobs;

-fairly open floor plan with at least 1-3/4 baths;

-and, attached garage (2-car preferred).

Age is unimportant. Pretty decent flipping jobs are rampant in the mid-century and sixties houses here in Chula Vista. Teams of investors are rehabbing the longtime-rental eyesores street by street and closing their sales within 45-75 days of purchase, lifting ALL surrounding homeowners’ boats.

Maybe Pigg SDR has more insight on what they gravitate to so you can streamline your search and not waste valuable time while prices are inching up with each closed sale.

If you want to buy a personal residence for a song, my advice is to get yourself out into East County and find yourself an unusual property with land and even views, move into part of it and fix it up little by little. Perhaps there are similar deals available in inland North County. I just don’t see how a buyer can go wrong here, unless they (inadvertently) purchase something with very expensive structural problems or terrible neighbors.

It doesn’t get any better than this, anxvariety!

[an]

[quote=flu]Let’s face it. Does it really matter now?
Rent is more than ownership with a ridiculous low rate. Waiting 5years more on rent, doubt one would come out ahead. Rates are gonna stay low per fed action[/quote]
exactly…

[anxvariety]

I think rent must be defined materially in order for the argument to be substantive. One can cherry pick purchase prices as well as rents and make a compelling argument. From an economic perspective though can one argue that home prices have found bottom/climbed from/climbing from etc, without considering where interest rates must head? I agree that rent and purchase are disconnected at the moment, but many find serenity in a 1 year lease.

[outtamojo]

I can’t believe you’ve been here for 6 years and not stumbled over this dead horse that’s been beaten to oblivion and beyond. On the other hand, congratulations for starting a housing related thread.

[anxvariety]

[quote=outtamojo]I can’t believe you’ve been here for 6 years and not stumbled over this dead horse that’s been beaten to oblivion and beyond. On the other hand, congratulations for starting a housing related thread.[/quote]

You probably have a valid point. I will read through existing threads to confirm 😉

[carlsbadworker]

[quote=flu]Rates are gonna stay low per fed action[/quote]

That said, if there is a black swan event that bring down the entire economy, it will be the interest rate. I don’t know how it is possible yet with FED’s printing machine. But the government is overloaded with the debt. Corporate America and investors are lured into debt by low interest rates these days. If the interest rate somehow did rise, it has more impact on your “investments”.

[bearishgurl]

[quote=anxvariety]I think rent must be defined materially in order for the argument to be substantive. One can cherry pick purchase prices as well as rents and make a compelling argument. From an economic perspective though can one argue that home prices have found bottom/climbed from/climbing from etc, without considering where interest rates must head? I agree that rent and purchase are disconnected at the moment, but many find serenity in a 1 year lease.[/quote]

AV, I take it you are renting on a one-year lease? If that is the case, hopefully, you will be able to buy something before or when it expires. If you want to “own,” the sooner you buy, the better, IMHO.

Forget your “fixation” on “interest rates.” They go up and they go down. As a buyer, you are looking for price and built-in sweat equity. You don’t give a rat’s a$$ about interest rates. If you bought in a higher-interest-rate climate, when they get lower, you will refi. End of story.

If you think “interest rates” are going to affect sales volume and prices in coastal CA counties, I’m here to tell you that they won’t. Buyers who need mortgages will simply buy less house for the same amount of money, as they always did. The buyers who don’t need a mortgage will pay cash (for a discount), as they always did.

If you are trying to make a “connection” between “interest rates” and home prices here, put away your spreadsheet … you are wasting your time. As you are coming upon your seven-year Pigg anniversary, the horse left the barn 2-3 yrs ago and the door is closing but has not yet slammed shut. My advice is to get moving NOW on your home search (remaining mos of lease be damned) and keep the Piggs posted on your progress 🙂

[anxvariety]

[quote=carlsbadworker][quote=flu]Rates are gonna stay low per fed action[/quote]

That said, if there is a black swan event[/quote]

Like the reference. Interested in what your interpretation of the term is?

[anxvariety]

[quote=bearishgurl][quote=anxvariety]I think rent must be defined materially in order for the argument to be substantive. One can cherry pick purchase prices as well as rents and make a compelling argument. From an economic perspective though can one argue that home prices have found bottom/climbed from/climbing from etc, without considering where interest rates must head? I agree that rent and purchase are disconnected at the moment, but many find serenity in a 1 year lease.[/quote]

AV, I take it you are renting on a one-year lease? If that is the case, hopefully, you will be able to buy something before or when it expires. If you want to “own,” the sooner you buy, the better, IMHO.

Forget your “fixation” on “interest rates.” They go up and they go down. As a buyer, you are looking for price and built-in sweat equity. You don’t give a rat’s a$$ about interest rates. If you bought in a higher-interest-rate climate, when they get lower, you will refi. End of story.

If you think “interest rates” are going to affect sales volume and prices in coastal CA counties, I’m here to tell you that they won’t. Buyers who need mortgages will simply buy less house for the same amount of money, as they always did. The buyers who don’t need a mortgage will pay cash (for a discount), as they always did.

If you are trying to make a “connection” between “interest rates” and home prices here, put away your spreadsheet … you are wasting your time. As you are coming upon your seven-year Pigg anniversary, the horse left the barn 2-3 yrs ago and the door is closing but has not yet slammed shut. My advice is to get moving NOW on your home search (remaining mos of lease be damned) and keep the Piggs posted on your progress :)[/quote]

I am not in/on a lease, the question isn’t particular to Coastal CA – opinion is that both are mostly irrelevant. How can one argue that change in interest rates will not affect prices?

[bearishgurl]

[quote=anxvariety] … I am not on a lease. The question isn’t particular to Coastal CA. How one can argue that change in interest rates will not affect prices? Assume I am not a renter, or buyer.[/quote]

Higher mtg interest rates in Coastal CA will only cause buyers to buy less house for the same money.

Due to the extremely “loose lending” rampant during the millenium boom (2003 thru 2007), 1st and 2nd time buyers became “conditioned” to expect a mid-level or even “luxury” home, area or both for the resources they had (DP, income and credit rating). After that period, this “conditioning” continued due to (artificially-induced by the GOV) historically-low mtg interest rates. Half of Gen X and all of Gen Y never even realized they had to “pay their dues” before acquiring their “dream home” that took previous generations 25 years and 3-6 previous home sales to achieve!

In a higher interest-rate environment (over 7.5% fixed), RE will still sell to buyers who need mortgages but each “tier” of it will sell to buyers with higher DP’s and/or higher income/credit qualifications.

The above paragraph does not apply to cash buyers or properties over about $1.5M.

After fixed mtg rates hit 12.5%, prices will still not go down but may stay stagnant for awhile. During this time, many more sellers who really want to sell will carry some of all of the paper on their property to effect a sale.

That’s the way its always been.

[bearishgurl]

AV, as far as “interest rates” correlating to “prevailing rents” in Coastal CA . . . move on, there is no connection here. In Coastal CA, rents are based purely upon desirability of the unit (supply and demand) and whether there is “rent control” in place in the jurisdiction of the rental property.

Many on this board have lamented that the “free and clear” owner who is collecting rent and has low property taxes is “gouging” their tenant(s). These “complainers” fail to take into account that this same owner very likely WAS at one time paying at least a 4% mortgage on the same property over the course of 20+ years whilst collecting $65 to $250 monthly rent for each unit (which was their “rental market” at the time). Do you think they all had a “positive cash flow” back then in light of repairs and vacancies? The truth is, these landlords who paid their properties off long ago are deserving of a “retirement income” today, provided they properly manage their unit(s) or hire someone else to do so.

RE in CA coastal counties isn’t “set up” to be a positive cash flow until the mortgage is retired.

That’s the way it’s always been. If you will be buying an SFR with a mortgage and want positive cash flow NOW, go to FL, TX or possibly still AZ, for starters.

[Coronita]

[quote=anxvariety][quote=carlsbadworker][quote=flu]Rates are gonna stay low per fed action[/quote]

That said, if there is a black swan event[/quote]

Like the reference. Interested in what your interpretation of the term is?[/quote]

6 years at the earliest is my prediction….

That approximately 1 admininstration + 2 additional years of possibly a new administration to try to administer a change (if any)… No this isn’t a political thread jack..

I’m just saying, in all likelihood, these bailouts/low interest rates will continue for another 4 years. they may continue longer if the next administration decides to continue with status quo. But then even IF they decide to do a course correction, it won’t happen immediately anyway…

Just look at how this fiscal cliff is being handled. Everyone’s trying to be “delicate” about it… Neither side wants to fall of the cliff and actually cut spending..They’re talking about deficit reduction when they really should be talking about debt reduction….Yeah, I don’t think we’ll see much policy change for some time….

Just look at how our government is trying to solve problems. They really aren’t fixing anything. They’ll not letting things fall or let rates rise. They’ll do anything possible to keep everything the status quo…Regulation? Phhhh. What new regulation…..And in case you haven’t noticed, subprime lending is starting again.. Just look at the auto industry again.

GM sold of GMAC (Ally) during BK and Ally had all those subrpime loans. After being bailed out, GM is now buying back parts of Ally and is already starting subprime lending again… It’s not just them, it’s happening at Chrysler too.

http://news.investors.com/business/072712-620090-gm-risky-subprime-auto-loans-fuel-sales.htm?p=full

You can bet give or take a few more years, we’ll be back at subprime lending for housing again (beyond the already instruments the current government has)…

In this country, savers lose. Always has, always will. Get with the program….And plan accordingly…if you can take a cheap loan out and beat the bank so to speak, then by all means do it. And even if you fail miserable and get FC on…Not a big deal anyway….

Why do you think suddenly I’m trying to take on as much government subsidized debt as possible by cashing out as much as possible?

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