Mortgage rate has come down a lot over the last 30 days or so. It’s now just a hair over 6%. Used to be over 7 a short while ago.
Homebuyer demand index picked up a bit from its October low, still underwater compared to 2021 and 2020:
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I spent most of my life when 6% was considered a cheap interest rate. The low rates of the last 15 years may be gone. But we will survive with these higher rates.
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What do you think is the steady state rate? 4%? 5%?
High rates + high house prices = housing market in comatose.
A typical house in SF and peninsula costs around $2M. Property tax alone is $25K a year. Buyers take out a 1.5M loan at 6% rate. Interests alone is $90K a year. That’s already $115K before a single dime in principal payment.
A family needs to make $400K a year to afford that house.
If can’t buy, then rent, right? How come so many articles claim that rent in SF is declining? In Austin, my rentals are renewed at higher rent.
I have a feeling US economy is in a stagflation… data has been corrupted some how.
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I think 4% is the best you can expect. 2% is gone for a long time. Even today 5.5% is available with points maybe less with variables . I bet 4% will be back next year. I always got variable loans because I was mainly a flipper. But since the 2008 disaster I have only paid cash. I think the last loan I had was interest only $1.2m at 6%. $6000/m in 2005. There are ways to beat high interest rates… people just forgot how. In your example a family making $200k could afford that 6% variable loan. The more you make the higher you can afford… maybe up to 50% of your income. People still make a lot of money. Wages are going up, double incomes parents money. There is a reason for high prices.
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In Bay Area too I have increased rent upon every renewal, so far. All this rent decline news is propaganda. For cap rates to rise to match the interest rate trend, either price needs to decline or rent needs to grow or both which is happening. Plus people not buying implies more demand for rental. So there are two upward forces on rent.
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People were buying multiple family at 2-3 caps in the Bay Area. I bet they are 4 now. That definitely affects the value of multi family. But there is hardly anything for sale. Still buyers coming to Tahoe with hot 1031 money. And 5.5% loans available
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Multi family market in Bay Area is literally dead. Very few are listing, no one is reducing price, at all. List price remains over summer peak. There is no volume and price discovery so no idea what the cap rates are now.
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There are plenty of buyers in Tahoe from the BA and Sacramento. Mostly Indian buyers. They are purchasing every available motel or hotel converting some to SROs . Also buying fixer multi family. Cap rates are 5-6%, very attractive to BA buyers. My Korean neighbor has a big source of Korean money and has been flipping motels and multi family. Bought 21 units in 2020 for $2.1m . For sale for $5.4m at a 3.4 cap. Probably worth only $4m… still not a bad payday… spent maybe $500k in improvements…but mainly just kicked out all the long term low paying renters to increase gross income. Net about $200k. Apartments go for about $200k per unit for old tired stuff. Newer units updated are $300k or more. Huge opportunities. Super low prices even compared to Sac or Reno.
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Now that pendulum is swinging back, do you anticipate Tahoe prices to fall back to pre pandemic levels (like other pandemic boom towns)? That would imply a huge crash given the historic run in Tahoe.
No because South Lake Tahoe is cheaper that everywhere else in the SacoMSA. One guy just bought a hardware store to tear down to build multi family. The largest motel owner in town is actively buying.
Rents for SROs are $1200. Rooms go for $1000. 3 bd houses are $3000. So I will buy any 3bd house under $500k and make 5-6% net. I am looking at one right now for $340k that needs $59k in work Cash buyers like us do not care about interest rates.
South Lake Tahoe is undergoing a major renaissance since I moved here in 2013. The old white landlords like me are dying off and selling assets to BA buyers. They are improving and building newer better assets. The new convention center is almost complete. The town is changing dramatically. The macroeconomic conditions are unpredictable. But when I first bought here in 2013 I predicted what has happened. Prices have tripled. There is current softening. But I see it as a buying opportunity.
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Jumbo 30 year are 5.75
A few multi family deals have just sold in Tahoe. 5.5% available for commercial loans.
See, naysayers, demand for housing (ownership) did not go away for good, just the sidelines…
Let’s hope for a good to great Spring selling season in these parts!!!
Mortgage demand jumps, as interest rates drop to lowest in months (cnbc.com)
Sale transactions have bottomed.
What about prices?
With Fed expected to pause rate for a year after Mar hike, prices are expected to waver within 5% till Fed U turn.
Are we seeing a big bump in SFH inventory out there with signs? I don’t think so…(esp around here)
Owners with deep pockets with low or no mortgages can just wait out the storm and may even be getting rent money of all things…
If fed does pause, mortgage rates should drop further. I think spring could be flat yr/yr.
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Inventory? No idea. But sale volume has bottomed and should increase from here.
Price or volume?