Would you purchase or wait in my position?

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Submitted by KristopherSD on January 18, 2015 - 9:41pm

Hello all, first time poster here at Piggington with a question that's been racking my brain for several years now. As an intro I am 26 years old with a very secure $100k year job, pension, maxing out 401k, zero debt, excellent credit, and $110k in savings. I've been very fortunate to find a great job and kept a low overhead which has allowed me to save quite a bit over the last 4 years. Unfortunately I missed the boat timing wise for purchasing at discounted prices as the bulk of my saving has been done in the last 2 years.

I've watched single family home prices climb and climb over the last few years as i've been saving and am starting to get worried that they will never come back down to what I consider "affordable" levels. I would love even a 10% correction in SD housing, and would ideally purchase a $425k-ish complete fixer upper with 20% down and fix it up from there. The worst house in the nicest neighborhood I can find (La Mesa, Allied Gardens, South or North Park, Ocean Beach)!

Currently I rent a small but nice 1 bedroom apartment 2 blocks from the ocean with my significant other with a total cost of $900 to me after rent and all utilities. I love the area we live in and although the apartment is very small I can see myself doing this for a few more years and continuing to save at a slower rate. My only concern is that prices will continue their upward march and all my efforts will be wasted in the long run.

Prices seem crazy to me and flipping activity is rampant in the areas I look at. My initial inclination is to keep saving and keep a low overheard and wait for a potential correction. It's always nice to get an outside perspective though. If you were me, would you bite the bullet and buy now, or hope and pray for a correction while continuing to save? I appreciate the input.

Thanks,
Kristopher

Submitted by an on January 28, 2015 - 10:54pm.

joec wrote:
Having a fixed known housing cost is great too...
Not only that it's a good feeling to know your housing cost is fixed, on the flip side of that is, rent will go up. That's a given. So, the longer you stay in the same house, the more likely the ratio of rent vs own decrease.

Submitted by Coronita on January 28, 2015 - 11:16pm.

I think people are making the decision to buy a home way too complicated in present day.

The only thing that really should matter is (1) can you really afford to own and (2) where you can afford to own, do you really want to live in that area for a few years or are you just making compromises so you can say you own a home.

There's a dozen or so things that can happen that makes trying to get the most optimal price on your primary home in hindsight not a big deal.

The only concern you should have really is if you can really afford what you want.

Submitted by Jazzman on January 29, 2015 - 12:22am.

deadzone wrote:
bewildering wrote:
Jazzman wrote:
I believe there is fair to good chance a convergence of factors will happen to bring about a correction in prices and when that happens you might expect the excessive 2013/14 gains to be wiped out. Those gains did not come about as a result of wage growth or a post bubble over-correction, so it is entirely reasonable to assume they are unsustainable.

I think Rich believes that the 2013 gains were not unreasonable in relation to rents, or income. Just a return to a normal market because few short sales/foreclosures. At least that is my reading of this blog.

There is nothing "normal" about a market that is being fully sustained by the Fed's zero interest rate policy.


We're at the monetary easing half way house. We now know what happens when it's in progress, but the jury is out on what happens now it has stopped. Seems a delicate time where everybody is praying that nothing comes along to rock the boat.

Submitted by CA renter on January 29, 2015 - 12:30am.

svelte wrote:
joec wrote:
One thing that may throw a monkey wrench in your planning is when you and your significant other decide to get married/have kids, then there will be a massive nesting instinct and you will be "forced" to buy no matter what.

True, true.

On the other hand, unless he marries whomever he's buying this current place with, they will force him to sell and buy something else anyway.

Brides who marry a man who already owns a home usually don't want to make their nest in the place he spent his bachelor days in.

Agree with Svelte's suggestion that many women would not like to "nest" in the home where their husband lived with another woman.

OTOH, it's not always the woman who pushes to buy vs. rent. In my family's case, I'm the one who pushed to sell the house that I bought before marriage so that we could rent and rent/bubble-sit for a few years. My husband desperately wanted to buy another house right away.

It's not a man vs. woman thing, but more of an emotional thinker vs. rational thinker issue.

Submitted by livinincali on January 29, 2015 - 7:47am.

AN wrote:

Transaction cost only apply if you sell. You're, right, there is maintenance cost. If you add that, you should also add appreciation as well.

But you can't realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.

The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It's only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.

Submitted by Coronita on January 29, 2015 - 9:35am.

livinincali wrote:
AN wrote:

Transaction cost only apply if you sell. You're, right, there is maintenance cost. If you add that, you should also add appreciation as well.

But you can't realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.

The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It's only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.

In the worst case scenario, we could have a big earthquake and fall into the ocean, and then Las Vegas becomes ocean front real estate.

And don't worry. If interest rates do rise, I'm sure the Fed and/or banks will pull another rabbit out of the hat. For example, I think by then, it will probably ok to re-introduce subprime lending again, so that people who normally can't qualify for a loan can once again make purchases again. Just like the auto-industry.

Personally, I'd like to try to stack up as many homes as I possibly can right before we start moving that way. I think I'd rather take my chances and buy real estate high and risk losing say 10% on a home purchase over the course of years rather than I'd say many people that lost almost 10% on stocks overnight. Just saying..

Submitted by an on January 29, 2015 - 10:46am.

livinincali wrote:
AN wrote:

Transaction cost only apply if you sell. You're, right, there is maintenance cost. If you add that, you should also add appreciation as well.

But you can't realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.

The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It's only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.

You can keep it simple for try to add more variables into the equation. They result is still the same. The house I gave as an example, P+I is ~$1600/month. Rent for that house is ~$2100/month. $1600/month gets you a 2/2 condo in Mira Mesa. So, if you buy this house, your mortgage would be equivalent to renting a 2/2 condo.

Actually, for this example house, MID would only be about 1/2 of property tax. Which is why I add it in there. Just so there's a clearer picture of what the exact yearly cost would be vs rent. I would say appreciation far out pace maintenance. Even at a modest 3% appreciation, you're looking at ~$13k/year. There's no way you would spend that much on maintenance. I haven't spent close to that over the last decade.

Also, assuming price doesn't change, the equity you put into the house through principle would surpasses transaction cost at ~44 months. So, if you stay in the house 5+ years, you'll put more principle into the house than the 6% transaction cost. Keep in mind you have option to pay less than 6% transaction cost.

So, it comes down to how long you intend to stay in the house. If you plan to stay only 3 years, obviously, you should be renting, not buying. Not only because of the finances, but it would save you a lot of headache with buying and selling since your time frame is too short.

Submitted by spdrun on January 29, 2015 - 12:59pm.

Seems a delicate time where everybody is praying that nothing comes along to rock the boat.

And some people are praying a few torpedoes come along to sink the boat :)

Submitted by Jazzman on January 30, 2015 - 11:26am.

KristopherSD wrote:
svelte wrote:
What you don't mention is how long you plan on keeping the home and/or staying in San Diego

I guess what puts me off buying now is what I consider very high prices. I cannot believe that fixer upper homes in Clairemont Mesa are going for $500k+ or $450k+ in La Mesa, not to mention $600+ in Ocean Beach. I wonder who is buying all of these homes, there cannot possibly be THAT many tech jobs around. Maybe I am wrong. I feel that I am in a very advantageous position with decent savings, no debt, and a stable job yet I somehow feel "priced out". This leaves me wondering if others are stretching the budget to purchase.

Right on the money. I've been saying this for years. In fact, even after RE bottomed I was still saying it and eventually voted with my feet buying where I found value. Of course, I've now seen huge appreciation and while my neighbors are jumping up and down, I skulk in the corner muttering "fools". Huge efforts went into propping up prices when what should have happened is a full correction. You could argue the cost would have been a depression. Maybe. Maybe not. Incidentally, there is a movement in London called "Priced Out" where the next generation is taking action. It is very well organized and has attracted media attention. The problem is noble causes often get tarnished with political brushes where wealth is concerned. The next generation will eventually have their say, however.

Submitted by kev374 on January 30, 2015 - 1:54pm.

All I can say is that reading these comments here about rents being sky high all I can say is that I must be lucky to have a spacious terrific 750sqft 1bd within such close proximity to Newport Beach and a good sized 1 car garage paying only 1200/mo.

My buddy must be luckier than me because he has a very similar apartment in Huntington beach, just a block from the beach, with a garage at $1300/mo.

A few other friends are lucky as well... one has a 2bd 1100 sqft place close by and pays $1525.

We are all exceptions to the rule of course, as rents are crazy high in line with mortgages on houses here that are listed at $500,000 for a 1000sqft shack...according to the media and the economists.

Submitted by Jazzman on January 30, 2015 - 2:48pm.

Rents in my neighborhood have gone bananas. It's the same disease that afflicts house prices. Landlords just gouge the market and get away with it because there is so little to choose from. They can be the dumbest creatures preferring to let their investment sit empty than ask a reasonable rent. Some renters never even question it. They just pay. Unbelievable, really.

Submitted by Coronita on January 30, 2015 - 2:49pm.

kev374 wrote:
All I can say is that reading these comments here about rents being sky high all I can say is that I must be lucky to have a spacious terrific 750sqft 1bd within such close proximity to Newport Beach and a good sized 1 car garage paying only 1200/mo.

My buddy must be luckier than me because he has a very similar apartment in Huntington beach, just a block from the beach, with a garage at $1300/mo.

A few other friends are lucky as well... one has a 2bd 1100 sqft place close by and pays $1525.

We are all exceptions to the rule of course, as rents are crazy high in line with mortgages on houses here that are listed at $500,000 for a 1000sqft shack...according to the media and the economists.

I remember not to far ago, you were mentioning how ridiculously high rent prices were.

And then also, you were considering moving to Atlanta.

Submitted by Coronita on January 30, 2015 - 2:50pm.

Jazzman wrote:
Rents in my neighborhood have gone bananas. It's the same disease that afflicts house prices. Landlords just gouge the market and get away with it because there is so little to choose from. They can be the dumbest creatures preferring to let their investment sit empty than ask a reasonable rent. Some renters never even question it. They just pay. Unbelievable, really.

Beggars can't be choosers :)

Submitted by an on January 30, 2015 - 2:53pm.

rent is as close as you can get to pure supply/demand. So, you might think it's high or low, but in reality, it's just market prices.

Submitted by svelte on January 30, 2015 - 5:43pm.

Rent here in San Marcos is $1700/mo for a two bedroom 1000 sf apartment, plus or minus $100. And supply is pretty limited.

I know, I've been assisting a friend of the family.

They ended up scraping together a 20% down payment and buying a 2 bedroom condo with a 2 car garage. Their payment is less that rent would have been.

There are so many submarkets in San Diego it is very hard to make a general statement about the entire county that means anything at all.

Submitted by an on January 30, 2015 - 5:47pm.

svelte wrote:
Rent here in San Marcos is $1700/mo for a two bedroom 1000 sf apartment, plus or minus $100. And supply is pretty limited.

I know, I've been assisting a friend of the family.

They ended up scraping together a 20% down payment and buying a 2 bedroom condo with a 2 car garage. Their payment is less that rent would have been.

There are so many submarkets in San Diego it is very hard to make a general statement about the entire county that means anything at all.

I'm pretty sure you can make a general statement if you preface it with except for undesirable areas. Then you can point to areas like Carmel Valley and say I was right, and areas like San Marcos and Mira Mesa as either undesirable or borderline undesirable.

Submitted by joec on January 30, 2015 - 7:29pm.

livinincali wrote:

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.

I sorta see the opposite actually. Remember, we live in a global economy now. Watching Bloomberg, they are saying that people are buying blocks of homes in favored big town areas (like NY, LA, SF) from China with cash. This makes it hard to see prices selling for significantly less since unlike a stock, selling a house is less easy (move, less willing to take a loss, etc...). The recent buyers in the past 5 years were also very well financially qualified so those hands aren't weak hands. They all have equity.

Also, every single developed nation has negative interest rates. Unlike 40-50 years ago, people nowadays buy international assets much more, especially in the US and there are insane levels of wealth out there.

Since international rates are negative, foreign people are more likely to BUY more US bonds. This pushes the yield even lower since the same equivalent bond in their country is like 2-3% lower...

Inflation is not a worry, everyone is concerned with deflation in Europe. I really think Feds won't raise rates materially (to 75 basis points+) till 2020 or later...

You can quote me on the above.

Submitted by spdrun on January 30, 2015 - 8:23pm.

joec - where are those "blocks of homes" in the NYC area that are for sale and being bought up by Chinese buyers? There are very few recent developments with identical tract houses around NYC. And the foreclosure crisis hit the area differently. There really weren't any overbuilt places where 8 out of 10 houses were up for distressed sale. Really nothing like parts of Riverside County out here. Nothing like Detroit either, except maybe in Camden, NJ outside of Philly.

The only thing I can think of are apartment and commercial buildings, but those tend not to be for amateurs. Probably some REIT buying. Also, some Indians (not Chinese) buying in very specific neighborhoods.

I'm watching the market around NYC (particularly in NJ). Inventory has tightened A LOT in NYC itself (at least in the good parts), but not much is changing in the NJ suburbs. If anything, the number of REOs has more than doubled over the past year and a half due to delayed judicial foreclosures hitting the market.

Lastly, what you're saying is exactly what they were saying in the 1980s. Japan will buy the US up, etc, etc, etc. Didn't happen so fast :) Cash investors aren't as strong hands as you think, either. If the market burps, they're actually more likely to sell at (say) a 20% loss than mortgaged investors. Why? Because they can, unlike people with 3% down which have to wait for a short sale, deed in lieu, or foreclosure. There's really no way to manage how many people run for the hills at once.

Submitted by scaredyclassic on January 30, 2015 - 8:30pm.

i saw a pretty ordinary but largeish (3300 sq ft) house a week ago in temecula right near my kid's piano teacher that was renting for 2300. that struck me as superhigh. piano lesson was tonight but i didn't notice if it was rented.

Submitted by CA renter on January 31, 2015 - 4:47am.

spdrun wrote:

Lastly, what you're saying is exactly what they were saying in the 1980s. Japan will buy the US up, etc, etc, etc. Didn't happen so fast :) Cash investors aren't as strong hands as you think, either. If the market burps, they're actually more likely to sell at (say) a 20% loss than mortgaged investors. Why? Because they can, unlike people with 3% down which have to wait for a short sale, deed in lieu, or foreclosure. There's really no way to manage how many people run for the hills at once.

Exactly. It's like BG claiming that heirs to fully paid-off homes won't sell until they get what they want. Hogwash. Those are the very sellers who CAN sell for whatever houses are going for at that moment in time. Strong hands don't have to wait for a rising market, and if returns on investments are far higher elsewhere, they will be quick to sell the least profitable investment (possibly houses) to free up cash for more lucrative ventures. For these owners, it's just business...no emotions involved.

Submitted by Coronita on January 31, 2015 - 8:37am.

strong hands won't sell if they cash flow much better than that 1%CD that most people have been tucking their money into. Just saying.

Also, there's a fundamental reason why some of the latest foreigners from asia are different from what happened during the japan days..When the Japanese went on the real estate binge, it was about speculation. The latest real estate binge isn't strictly about speculation. It's about the 1% in those countries taking a hedge against political/economic instability in their homeland, in case the government decides to start going after them. Besides, foreign purchase, BTW still doesn't make the majority of home purchases, despite the media the rhetoric- 25% i believe was the last number for all foreign purchases, most of them from canada. And most of them from asia are at the high end of real estate. So you folks worried about an "Red Dawn" like invasion can stop worrying.

Also, don't discount how much homes are held by institutions. Remember that many of them got into the rental business as well and are just waiting to home prices to rise to sell and profit, as many other folks that bought at low prices will.

Personally, I'm in no hurry to sell. The only time I would is if/when home prices reach 2x of what I paid for, and then I might consider it of if San Diego turns into blight town (which is unlikely, and if that happened, you wouldn't be interested in buying anyway). Why sell when it's a steady source of rental income, that will most likely beat that CD for a long long time? And for more "affordable homes" that were bought at good times, that's the problem that I see. There's no hurry to sell.

Submitted by Coronita on January 31, 2015 - 8:38am.

scaredyclassic wrote:
i saw a pretty ordinary but largeish (3300 sq ft) house a week ago in temecula right near my kid's piano teacher that was renting for 2300. that struck me as superhigh. piano lesson was tonight but i didn't notice if it was rented.

More of my colleagues have been successful renting their 3000sqft homes in my hood for close to $4000/month, and people are paying.

Submitted by scaredyclassic on January 31, 2015 - 9:19am.

CA renter wrote:
spdrun wrote:

Lastly, what you're saying is exactly what they were saying in the 1980s. Japan will buy the US up, etc, etc, etc. Didn't happen so fast :) Cash investors aren't as strong hands as you think, either. If the market burps, they're actually more likely to sell at (say) a 20% loss than mortgaged investors. Why? Because they can, unlike people with 3% down which have to wait for a short sale, deed in lieu, or foreclosure. There's really no way to manage how many people run for the hills at once.

Maybe it's better then to sell your house before you die. Hold out for a better price...

Exactly. It's like BG claiming that heirs to fully paid-off homes won't sell until they get what they want. Hogwash. Those are the very sellers who CAN sell for whatever houses are going for at that moment in time. Strong hands don't have to wait for a rising market, and if returns on investments are far higher elsewhere, they will be quick to sell the least profitable investment (possibly houses) to free up cash for more lucrative ventures. For these owners, it's just business...no emotions involved.

Submitted by ltsddd on January 31, 2015 - 10:03am.

Low interest rates have a lot to do with the high prices. Prices seem steep if you're looking at prices and prices only. As a home buyer, I think it's more important as to what your monthly payment is going to be vs. the (crazy) prices that the market is dictating. Assuming a 20% down payment, and you'll have to cough up a little more up front, monthly payment for a $450K house at 3.5% interest rate is ~ a $300K at 7.0%.

Submitted by wallers on January 31, 2015 - 11:55am.

I think one of the potential pitfalls is that a 450k house 3 years ago is now 650k. So for the 700k and under market there eventually/if not already although it still seems to keep going up will be an affordability issue based on incomes.

Investors drove this up. Followed by Jim and Jane in a panic that they will be priced out forever if they don't pay these prices. Most investors buy low. Jim and Jane buy high. At a certain point investors don't invest because Jim and Jane can't afford to buy even in their panic mode. Investors leave. Jim and Jane who stretched to buy are now underwater. Media interviews with Jim and Jane about the poor state of the housing market and screaming headlines about things going bad and what are they to do now. And it's time once again for investors to come back and buy Jim and Jane's house for a fraction of what they bought it for.

Alot of people don't peel the onion. They take prices for face value. And doubt things will ever change. Good for some. Bad for alot.

Submitted by svelte on January 31, 2015 - 7:33pm.

AN wrote:
svelte wrote:
Rent here in San Marcos is $1700/mo for a two bedroom 1000 sf apartment, plus or minus $100. And supply is pretty limited.

I know, I've been assisting a friend of the family.

They ended up scraping together a 20% down payment and buying a 2 bedroom condo with a 2 car garage. Their payment is less that rent would have been.

There are so many submarkets in San Diego it is very hard to make a general statement about the entire county that means anything at all.

I'm pretty sure you can make a general statement if you preface it with except for undesirable areas. Then you can point to areas like Carmel Valley and say I was right, and areas like San Marcos and Mira Mesa as either undesirable or borderline undesirable.

WTF man I said a general statement about the "entire county" and you made a statement using exceptions to specify submarkets!!

You took my statement about apples and talked about oranges.

Submitted by joec on January 31, 2015 - 7:43pm.

As most Asians know, the Japanese CA buyer is a very different buyer than Chinese IMO. If you look at CA immigrants of Chinese or Japanese, there are very few Japanese and most Japanese don't want to leave Japan. I don't look at any place other than CA honestly since it doesn't affect me.

In places like Cupertino, UC Irvine, many foreigners from China, Taiwan, Hong Kong, Asians from Canada buy and have no plans to leave. Those places I think are now > 50% asian already and they aren't going anywhere. Asians also don't trust "stocks" as much as real estate so those hands aren't as weak as people make it out to be. It's really hard to explain this to non-asians since the white man lives a totally different life/upbringing.

This makes their purchases MUCH more sticky than what happened in the 80s with Japan.

As flu mentioned as well, rent vs buy is also the ultimate calculation since interest rates will be stuck low for a very long time and people who are well off have more cash and very little options on their money. As has been reported, if people can move up, many are trying to keep their old homes to rent since they cash flow well.

Rent in 4S is 3700+/month already for 3k sqft homes already:
http://sandiego.craigslist.org/search/ap...

Submitted by FlyerInHi on February 1, 2015 - 12:14am.

Joec, interesting comment.

Back in the 80s, the Japanese bought commercial properties.

Today, Asians from China, Taiwan, Korea, etc... buy houses to live in, or for their kids to live in and go to school. They travel back and forth. I know a gal from Taiwan. Her parents bought a house in Irvine so that she and her brother could go to University High. She lived there with mom while dad did business in Taiwan/China. That was a couple decades ago.

Also, today, immigrants are high skills. They are much more mobile and stay in touch with their home cultures and relatives via Skype, Facetime, satellite TV, etc...

It's not just Asians, but high skill immigrants from all over the world. One of my neighbors in San Diego is Eastern European. Wife works in biotech and husband is in computers. They speak to their son only in their native language so that he is fully bilingual. They are looking to move back to Europe for their son's middle and high school, before coming back to America later when the son is ready for college.

Submitted by CA renter on February 1, 2015 - 1:31am.

flu wrote:
strong hands won't sell if they cash flow much better than that 1%CD that most people have been tucking their money into. Just saying.

Right. That's why I said this in my previous post: "Strong hands don't have to wait for a rising market, and if returns on investments are far higher elsewhere, they will be quick to sell the least profitable investment (possibly houses) to free up cash for more lucrative ventures. For these owners, it's just business...no emotions involved."

flu wrote:
Also, there's a fundamental reason why some of the latest foreigners from asia are different from what happened during the japan days..When the Japanese went on the real estate binge, it was about speculation. The latest real estate binge isn't strictly about speculation. It's about the 1% in those countries taking a hedge against political/economic instability in their homeland, in case the government decides to start going after them. Besides, foreign purchase, BTW still doesn't make the majority of home purchases, despite the media the rhetoric- 25% i believe was the last number for all foreign purchases, most of them from canada. And most of them from asia are at the high end of real estate. So you folks worried about an "Red Dawn" like invasion can stop worrying.

Also, don't discount how much homes are held by institutions. Remember that many of them got into the rental business as well and are just waiting to home prices to rise to sell and profit, as many other folks that bought at low prices will.

Many of those institutional buyers are working on behalf of foreign buyers. And it's not just the Chinese who feel that U.S. real estate is a more secure store of wealth than their own currencies and local investments, people from many different countries are buying U.S. real estate as a hedge against their currencies collapsing. Some Americans are doing this, too!

As you know, I've long been pointing to institutional buyers as being part of the problem, irrespective of the nationality of their clients.

I don't think that people are worried about a "Red Dawn" invasion, just that all of these extra buyers are putting pressure on prices, forcing locals out of the market.

Americans have been doing this to people in other countries, too, like Mexico (decades ago, it was the big thing to buy land down there because it was so cheap to buy with US dollars) and other developing areas that have a much weaker currency/poorer local population than ours. The locals in those countries don't like it when we do it, either, which is perfectly understandable, IMO.

flu wrote:
Personally, I'm in no hurry to sell. The only time I would is if/when home prices reach 2x of what I paid for, and then I might consider it of if San Diego turns into blight town (which is unlikely, and if that happened, you wouldn't be interested in buying anyway). Why sell when it's a steady source of rental income, that will most likely beat that CD for a long long time? And for more "affordable homes" that were bought at good times, that's the problem that I see. There's no hurry to sell.

Yes, you'd be right to hold on to your real estate if CD rates are <1%, but what if rates were to skyrocket to 10%, or higher? How would you feel then? And what if housing prices were likely to decline at the same time that other investments were offering much higher returns (and the potential for much higher capital gains, too), particularly if rates rise significantly?

That's the issue. If rates go up significantly, or if some other investments suddenly look much better than real estate, speculators will start to shift away from real estate, and many of them will sell if they feel that housing prices will go down in the future and/or if they want to free up more cash in order to purchase these other assets.

As others have pointed out, low interest rates around the world are really fueling this speculation. Both because there is nowhere else to turn, but also because it causes concern among many investors/savers/speculators regarding the future value of the currency they hold -- pushing them into hard assets as opposed to cash or similar holdings.

Submitted by Coronita on February 1, 2015 - 8:20am.

Quote:

Yes, you'd be right to hold on to your real estate if CD rates are <1%, but what if rates were to skyrocket to 10%, or higher? How would you feel then? And what if housing prices were likely to decline at the same time that other investments were offering much higher returns (and the potential for much higher capital gains, too), particularly if rates rise significantly?

I think you need to step back and not think in terms of "doom" and "gloom". I think the Fed has proven it likes to intervene. The "powers" won't "let" rates "skyrocket" to 10% really very quickly. Afterall, they are really good at "fixing" things. And if they did let that happen, it would end up wreaking havoc on the financial markets, on businesses,etc, and then the majority of Americans would have a much bigger problem at hand than thinking about buying real estate. Just ask the Russians.

Any sort of rate move would mostly be a slow and steady trickle up, so that it causes a little discomfort, but manageable and tolerable for most people. Just like the how rates on mortgages have already risen 1% since the bottom, slow and steady.
Has that 1% rise thus far caused a real estate meltdown?

Second, what happens with CD rates might be good for my own money (or maybe not), but it doesn't affect the money from fannie I borrowed for 30 years to finance the home purchases. What does matter is my tenant's ability to help me build equity and generate some cash flow. It's not like fannie would directly lend to me money to invest in dividend stocks or 10%CD. That's what I use my own money for.

Why would I want to sell my homes and "fire" borrowed money from Fannie that I currently "employ" to work generating income for me, when I wouldn't be able to "rehire" borrowed from Fannie (or any other source) to "work" in a 10% CD? (Not to mention, as part of "firing" Fannie money, I would also have to pay capital gains taxes, depreciation recapture,etc,etc)?

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