Historic low mortgage rates-how can homes increase in future?

[birmingplumb]

Absent another disaster like Japan experienced, or mass exodus from new Chinese middle class ( 300 million by 2020)to America,
somebody please convince me how Mira Mesa @$350 per sq ft or Carmel Valley @ a kajillion dollars per sq ft can possibly increase in value when mortgage rates return to normal ? There is a saying in real estate ‘as rates go down, prices go up and vice versa as rates go up prices drop” all due to monthly payments which is what all or most all look at not total price
. Please do not say the schools, as all of San Diego can be included in the example based on zero inventory in Spring Valley as well.Motown

[Coronita]

CarmelV for some reason or the other remains in ok demand due to location and general health of upper income people. Mira Mesa remains in demand due to short proximity of tech companies..From what I can tell at least.

It seems like for upper income tech people, more or less some or still pretty well off. Well, at least some who work at select companies here that have so far not seen a big hit due to the economy.. To give you a frame of reference. Ones of my neighbors sold their homes recently. New owner is double income, both working in tech (most likely qualcomm)… One neighbor is a dentist, and looking to upgrade from my neighborhood to Del Mar Mesa. His issue is he doesn’t like the homes available. Similar, my real estate friend just helped two people buy brand new homes in Mira Mira in the new Pardee communities. Closing price was $680k. Both families were Chinese, retiring…Both paid case for homes. So I recall some folks wondered who would be spending that much for a home in Mira Mesa… You have been answered.

Rental demand remains strong in MM. At least for me…Recently, my current tenant in a 1/1 was trying to ask me to reduce his rent by $50/month for the next few months. I balked and said keep the same rent, because this area is in demand and renting for $100 more than current rent. He thought I was bluffing, and was telling me he plans to move out… I said, look I’m trying to cut you a deal, are you really sure?
I test posted it available over the weekend on craigslist that possible available in in october, for a 12month term, and $50 more than I charge current tenant for 6months… 2 days later got 7 people inquirying… All people are tech workers that are either starting in Sorrento Valley or on a 6month-1year contract as a enginerd or software person.

Unfortunately, for CarmelV and MM, I don’t think SFH cash flows too well at today’s prices..AT least not for me…

[davelj]

For the bajillionth time… how housing prices react to higher mortgage rates will be largely dependent on how those rising rates correlate with rent inflation. If rent inflation rises with higher interest rates… higher mortgage rates may not have much of an impact on housing prices, or could possibly lead to higher housing prices depending on the circumstances. See the late-70s for a good example of this – rates skyrocketed… so did housing prices. Looking at mortgage rates in a vacuum is meaningless.

[(former)FormerSanDiegan]

[quote=birmingplumb]
There is a saying in real estate ‘as rates go down, prices go up and vice versa as rates go up prices drop” all due to monthly payments which is what all or most all look at not total price. [/quote]

Just because there’s a saying doesn’t make it true. That saying is a fallacy and as mentioned abve have been discussed ad nauseum on this board. But, some people are new, so it comes up periodically.

So… here are the Cliff’s notes…

Consider home prices and interest rates from the mid 1960’s to 1980.

30-year mortgage rates circa 1966 were about 5.5%
By 1981 they were 16 – 17%. So interest rates tripled in 15 years.

What did home prices do from 1966 to 1981 ?
New homes in the US went from about 22K median in 1966 to about 75 K in 1981.

Similar pattern for resale homes.

So, the saying is not true.

[birmingplumb]

Thanks for responses. I really want to get something there but the question begged to be asked as no room for error at my age. Motown God bless all posters here!

[an]

$350/sq-ft, I’m assuming you’re referring to those smaller 1100 sq-ft SFR that’s fully remodeled. That’s definitely at the peak of price/sq-ft in MM. You can easily get low $200/sq-ft right now. You just have to settle for 80s interior and a larger home. The majority of the cost is the land. Also, people flock to the fully remodeled ones, so your competition is much higher there.

Also, like others have said, it really depends on why the rates went up. historically, when rate rises (by a lot), price also rises, due to inflation. Only time will tell. However, at this point in time, those low $200/sq-ft houses I’m talking about, PITI for those houses should be around $2100/month, while rent on those should be around $2400-2500. Also the ROI is not as good as a 1/1, it’s still cheaper to buy vs rent. This is before taking tax deduction into consideration.

[an]

[quote=flu]Similar, my real estate friend just helped two people buy brand new homes in Mira Mira in the new Pardee communities. Closing price was $680k. Both families were Chinese, retiring…Both paid case for homes. So I recall some folks wondered who would be spending that much for a home in Mira Mesa… You have been answered.[/quote]
Wow, that’s crazy. That would put it at higher PPSF than 4S Ranch. I would have thought MM’s reputation would prevent that from happening. I guess I’m totally wrong.

[FormerOwner]

One thing to keep in mind is that in the 1960’s and 1970’s, people’s wages went up along with rising interest rates and a fall in the value of the dollar. So, basically, the whole economy just got repriced and prices on everything went up in nominal terms. If you owned a house with a mortgage, you made money because the mortgage was priced in dollars at the time you bought and got paid back in dollars that were worth less as time went on. Today, employees have much less power to demand wage increases, so I don’t see wages increasing very rapidly. This will put downward pressure on the rate of increase in house prices. No matter how rapidly the dollar loses value, I don’t see employers give huge raises going forward into the forseeable future. I see food and energy prices rising much faster than house prices going forward – those commodities are traded globally and you can’t double up and share them easily, like you can with a house or an apartment. You can conserve commodities, but only to a point.

[birmingplumb]

great responses, thanks and God bless all here.
I agree the biggest question is: Now that the race to bottom for American Manufacturing has produced a equal or greater counterpart-race to middle class for 3rd world countries- what will they do with their new found wealth and how do I finally use my 62 year old experienced brain to figure out what to buy 5 to 7 years before they “need ” it and will pay 10 times more than I paid. (Lumber, which commodities? roof shingles. freon,real estate, gold or like the bible says-food? and which vehicle , stocks in the sector chosen.? Motown

[Coronita]

In my opinion if you’re 62 and assuming you already have a reasonable retirement nest (and have reasonable social benefits right now).

Your goal shouldn’t be speculative, aggressive growth. You’re goal should be wealth preservation, and simply keeping afloat above inflation slightly. With that, you can eliminate buying property expecting significant appreciation in your lifetime. If I were you, I’d try to keep your assets in safe(r) things around 5-6%…IE cash flow positive erroring on the side of no foreseeable appreciation in the next decade.

[an]

The real question is, are you buying a primary retirement home or an investment home? If it’s a primary resident, it’s much easier to make the numbers work, since you do need to live somewhere. Especially when you’re already 62 and the likelihood of you selling and moving into your retirement home is slim, since this would be your retirement home.

If you’re talking about buying it as investment, then these two areas would not give you the best ROI. With the 2 areas, condos will give you better ROI than SFR.

If you’re just talking about in general, how prices can go up if rate goes up, it would apply to all areas and not just CV and MM.

[SD Transplant]

According to the latest report, a lot of foreign buyers in the US lately.

http://homes.yahoo.com/news/real-estate-tourism–who-s-really-buying-america-s-homes-.html

“Russian billionaires have been making headlines for snapping up some of the most opulent homes in the United States. Yuri Milner “overpaid” by 100% on a $100 million Silicon Valley mansion in 2011. Dmitry Rybolovlev’s daughter bought an $88 million penthouse in New York City (after spending $100 million on Donald Trump’s Palm Beach palace in 2008). This month, an anonymous Russian buyer plunked down $47 million in Miami’s most expensive sale ever.

But Russians certainly aren’t the only foreigners plowing money into American real estate. “The reason the Russians get so much attention is that they buy the highest ticket trophy properties,” says Jacky Teplitzky, a managing director at Prudential Douglas Elliman Real Estate, who peddles property in New York City and South Florida. “But if you go by number of buyers, you have much more activity coming from places like Argentina, Brazil, Colombia and Venezuela.”

To name a few. Since the housing bust, foreign buyers have flooded the U.S. housing market, taking advantage of favorable exchange rates, weaker prices and, in some cases, record-low mortgage rates. Foreign nationals accounted for $82.5 billion, or 8.9%, of the $928 billion spent on U.S. residential real estate from April 2011 through March 2012, according a June survey from the National Association of Realtors. That was up 24% from $66.4 billion the previous year. More than 50% of sales over the past year occurred in just five states: Florida, California, Texas, Arizona and New York.

Chinese are also shopping in the U.S. in growing numbers. Buyers from mainland China and Hong Kong account for over $7 billion in sales annually, or 11% of international sales activity in the year to March, according to NAR, making them the second-largest foreign buyers of U.S. homes. The influx of newly minted millionaires has inspired developers to reserve units on floors with the number 8 in new condo projects — like Manhattan’s One57 — for Chinese buyers (Chinese consider 8 to be a lucky number), and real estate brokers are embarking on overseas marketing trips that have resulted in big-ticket purchases like Beverly Hills’ $34.5 million Wehba Mansion.

If the Chinese are the second-largest foreign buyers of U.S. homes, who’s No. 1? Our neighbors to the north. Canadians accounted for 24% of sales to foreigners in the year to March, according to NAR. And it’s not likely to let up: Realtor.com says Canadians account for the most international search activity on the listing site every month in nearly all of major U.S. metro areas.

Canadians have been a dominant purchasing force in hard-hit Sunbelt states like Arizona and Florida. A relatively weak greenback coupled with low home prices represents an opportunity to scoop up a home that could be used for vacations now and retirement later.

Canadians have also been buying in the Midwest, including Chicago. “Close proximity to Canada makes it an easy place for Canadians to invest money,” says Bob Krawitz of RE/MAX Signature in Chicago. He says interest runs along all price points, from distressed properties that can be fixed up and rented out to seven-figure mansions along Lakeshore Drive.

Brazilians are getting attention for their buying sprees in markets like Miami and increasingly, New York City, but Argentineans have been just as active. “The foreign buyer story should be as much about Argentineans as Brazilians,” asserts Philip Spiegelman, a principal at International Sales Group, a marketing and sales organization for real estate developers. “The market in downtown Miami has been principally dominated by Argentineans, then Brazilians, then Venezuelans.”

Increasing numbers of Venezuelans are pouring money into American real estate, seeking a safe haven for their wealth from political and financial uncertainty back home. Teplitzky says many of her South American clients, who also include Colombians and Argentineans, seek out rental units, especially in Miami. “The new landlords in Florida are South Americans and their tenants are Americans,” she adds.

Spiegelman says Europeans, particularly French, have been buying more in southern Florida in recent months as well. “The real attraction here is cheap, cheap, cheap waterfront real estate: These buyers look at this and think it will never be as cheap again.”

Given the uncertainties of the European Union’s fiscal crisis, many wealthy Europeans are desperately trying to shed their euro zone homes and reinvest that money in American real estate. A growing number of brokers, like Italian-born Richard Tayar of Keller Williams NYC, cater to clients looking to do that.

French and Argentineans have become a notable part of the buyer pool in New York City as well. In the luxury condo building Trump SoHo, Argentineans have accounted for the second largest number of sales this year. “Argentina is an unsung element of our demographic base,” says Amy Williamson, vice president of sales for the Prodigy Network. She says Mexicans and Peruvians have been very active also, particularly at the higher price points.

South Koreans have quietly been scooping up investment properties in the New York metro area. Brokers like Martin Chung, a senior vice president at Corcoran Group, are looking to market to them, printing up property postcards in Korean.

Sang Oh, president of Asia operations for Platinum Properties, just returned from a month in South Korea, where he pitched prospective clients a new development called Sky View Parc in Flushing, Queens. “Korean buyers have come back on very strong in the past year and a half,” notes Oh. He says most buyers he deals with want to be landlords. With rents up 40% from 2002 to 2008 in Flushing, it’s the reason he’s peddling Sky View Parc. “There’s a lot more interest in areas that you wouldn’t have thought of — tertiary markets like Flushing, Long Island City, areas of Brooklyn.”

On the West Coast, Asians have been busy buying homes as well. In addition to the Chinese, Singaporeans, Indonesians and Malaysians have been active, says Christophe Choo, a Los Angeles-area luxury real estate broker with Coldwell Banker Previews International. They typically want new construction, particularly condos, that they can use as pied-a-terres.

Armenians and Croatians – many under the age of 30– are plunking down millions for homes too. “[Armenian nationals] are very similar in ideals and philosophies to Russia,” asserts Choo. “They are on a major spree, buying large properties for family compounds that they buy, tear down and build major homes on.”

[Author]

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