[gzz]

Millennial, rates do not need to fall to support appreciation.

Right now buy v rent comparisons strongly favor buying in SD, even without assuming rising rents making renting even worse and rising prices making buying better.

My Nov 2016 condo purchase is already rented out well above the mortage payment, and on top of that each payment reduces my balance and the tax and interest is deducted from rental income. For first and 2nd home buyers, they can deduct these expenses from ordinary income too. I got a pretty good price on it, but even if I paid 15% higher it would still not only be profitable, but more profitable than risk free gov bonds. I would happily buy a 4th property but I am close to tapped out on DP and current condo inventory in 92107 stands at a whopping 3. (In March 2011 condo inventory in 92107 was 53!).

[gzz]

In the long run pop growth is important. But the reason we have weak native population growth is women are delaying children and marriage or not marrying at all. So that is bullish for the market as single women earn more and for a longer time than their married peers, and may also buy a house or condo and live alone. The technical term for this trend is a decrease in household size. Even when they do have children, once a woman hits three kids daycare usually is more expensive than working at even a upper middle class job. But this happens much less often. So instead of a one income couple with three kids we have more dual income couples with one kid who use that double income to bid up rents and house prices.

The work from home trend is also bullish and i think enough to offset the population issue. When you work from home you need more space and have more to spend on it without commuting expenses. I wonder if work from home people will prefer urban or outer suburban areas. You could feel really isolated out in the burbs if you never leave for work and prefer somewhere with street life and walkable amenities. On the other hand, you no longer need to live close to a job center.

[gzz]

OK, so we agree I think that “fundamentals” for RE are payments and rent (or rent+income), but other factors can dominate fundamentals in the short to medium term.

Looking at those other factors, I think they are generally bullish: lots of prior buyers are sitting on nice gains, every homeowner with a brain and good credit has refi’d into low rates and can hold/rent if they buy another house, supply growth is very low, income growth is fairly good, wealth effects from stock market gains, and long-term trends favor places with clean environments, good weather, and low crime.

Affordability of down payments and conservative banks are the main damper on things.

Regarding “this time is different,” inequality just keeps getting worse and I believe now has broken the old records from the Gilded Age. And we’ve never had such an old population with such a low birthrate, and the concept of demographic momentum means even a big increase in the birthrate, as unlikely as that would be, would take a very long time to change these trends.

[gzz]

In response to AN:

gzz, I don’t believe we’ll see a sub 1% long term rate. I agree with Rich on this point.

I should clarify that I am talking about 10-year Treasury rates, and I think it may be a good 5-10 years before they move south of 1% for more than a few days at a time.

However, in July 2016 the US ten-year dipped down to 1.37%. So .38% below the rate a few months ago isn’t that bold a prediction.

I also think gov bonds are a bit overvalued compared to corporate and munis. So it is possible gov rates and gov-influenced mortgage rates go flat while other important rates fall. Indeed, I own plenty of bonds but no US gov debt.

[gzz]

Additionally, I happen to believe that rates are more likely to go up than down, but that’s secondary to my main disagreement.

After clarifying that I don’t think the rent/rate or “payment ratio” model is either perfect or instant, I think it really is where we disagree.

I again think it sets the trendline along which other factors push prices up or down. You can even see it in your article where valuations, despite the worst recession in 70 years, stayed above 77-78 and 84-89.

http://www.voiceofsandiego.org/wp-content/uploads/2017/02/monthly-home-payments-lower-than-average-doesnt-assure-higher-prices022317-02.png

If you want to make the case for sub-1% long term rates, go for it. But to say that there’s “NO reason” long term rates will stay above 1%, when inflation is significantly above that number… come on.

My main case is based on inequality leading rich people to greatly increase the pool of loanable funds, but demographic changes to decrease the demand by creditworthy borrowers for those funds.

I very much think the US 10-year rate will semi-permanently fall below most measures of inflation within a few years. Indeed, that is already the case for shorter term U.S. rates, and is already the case elsewhere in the world. In Germany, the 10 year rate is about 0.5% and the inflation rate is about 1.6%. Our aging demographics are basically Germany’s shifted back a few years.

In the unlikely event we see some real inflation, sure that might drag up nominal interest rates a bit. But even then real rates will continue to fall.

[gzz]

AN, I think where Rich disagrees with us is not the importance of payment ratios, but that he thinks rates may revert to historical means and send prices down.

I think we are in a new normal with low rates caused by inequality (rich people get richer and save most of their new wealth, creating a huge growing pool of loanable funds), ageing reducing the number of creditworthy young people who want to borrow from that big pool, and a Fed that has gone from thinking 5% core inflation is OK, to a 2-3% target, to a 2% target, to a 2% max.

I really see no reason why long term rates in the USA won’t fall below 1% given they are around 0% or less in Germany, France, Italy, Holland, Switzerland, Japan, and Austria. Our population ageing is not quite as bad as those countries, but we are basically about 10-15 years behind them on that front.

My forecast for 12/2019 is 3.3% 30 year mortages and nominal prices 20-30% higher than 12/2016. I also think a new bubble is more likely than a 5% price decline. Finally I think rent growth will be 1-4% a year, but it won’t matter for prices as they are still low relative to rents.

[gzz]

We could also revert to the historical payment ratio median, which would mean home prices go up about 22% even with no rent and income increases in 2017. And using the historical average rather than median, plus assume rent and income growth of 5%, we would see prices go up about 40% in 2017.

That won’t happen without loose lending, so instead we will have ultra low inventories in 2017 because prices are below fundamentals and stuck going up about 7-8% a year as banks keep using conservative comps when lending.

Trump could well loosen up money soon if he wants a boom, in which case those 20+% increases could happen again, as well as overshooting their fundamentals. I think that is more likely to happen in 2018 however.

The “flat prices” scenerio mentioned needs to explain how that will happen with inventory levels that in the past here and elsewhere in the USA are associated with strong price growth.

[gzz]

Seems unlikely they did all that damage to those parts and are not elsewhere in the house and the soil around it. Did you look carefully for droppings in every other corner inside and out?

[gzz]

Spdrun, 29 and 87 crashes were sudden even if not apocalyptic.

A natural disaster if big enough could knock out insurance companies, which themselves would have to dump assets to make payments, and have bonds which could lose most or all of their value, causing a financial meltdown.

In 2015 the Chinese market fell about 40% from July to October. The US market never had the crazy run up that China did beforehand however.

I am not predicting any of this, and my put gains would far from offset my equity losses. But in the bull market now some insurance is nice and seems pretty cheap.

[gzz]

You got me to google this. In europe 37 is more standard (but I remember 38 in the small casinos in spain). in the USA 38 is standard, but 37 is common in high roller rooms in Vegas. Barona is the only place in California that has 37. Vegas Sands has 39, marked 0 00 and S for an extra rip off experience.

[gzz]

I don’t see why a 70s or 80s home would need an electrical upgrade. Appliances from the fridge to the TV use a lot less juice, and LEDs save about 90%. I would expect them to be overbuilt for modern needs and I am not aware of serious problems with wiring on even much older houses from the 50s and 60s.

[gzz]

My house was renovated internally in 2004 by a prior owner. 100% new electrical, 100% new overhead lights and wall outlets, and new copper pipes. They are exposed in the ceiling of the walk out lower level, and in 2014 I paid to have them cleaned and polished and they look really nice. I also painted the iron gas pipes and vents with metallic copper paint. It isn’t shiny like new copper, but as the patina set in on the real copper now they match unless you look very carefully.

My major complaint about the renovation is that my kitchen was done mid grade without adding a dishwasher. So I am stuck with an OK kitchen that is only 12 years old, too new to replace without being wasteful.

Overall, however, the renovation was done right including the elements that are not obvious.

[gzz]

If I played roulette it would be on a wheel with only 0, no 00. I’ve seen both.

[gzz]

If I were 65 and living with just my wife, the idea of taking care of a 4700sf RSF house with acres of landscaping and long drives to go anywhere sounds pretty bad.

As for investment purposes, annual costs will be higher in RSF and it seems like the mid to high range there can take 6-12 months to sell, adding a major cost.

I love landscaping now, both doing some of it myself and supervising others. But I am in my 30’s and dealing with much smaller lots. 5 acres in my late 60’s sounds like a continuous chore. My grandmother has too much stress maintaining her 2500sf house on 1/4 acre despite family help, and I know she gets gauged on some maintenance tasks.

[gzz]

I have seen ancient listings on zillow. They either scrape listings from other sites without removing them when rented, or else let people post but do not automatically expire.

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