At what mortgage rate would you seriously decide to buy in Irvine at the current price levels???

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usctrojanman29_IHB

usctrojanman29_IHB

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This thread inspired by the feature topic posted up by IR on the home page of IHB about the 4.5% mortgage rates. So the question is, at what mortgage rate would you seriously decide to get all the rental fence and buy something in Irvine at the current price levels???



This is a tough question because whichever rate you pick you would basically be forced to hold the home when rates go back up as the prices would decline. However, it would present an interesting possibility to acquire future rental properties if the total cost of ownership would be below the rental rate. I would seriously look to buy if I got a 30-year fixed rate at 2% or less (not that will ever happen). haha
 
I'll be a buyer at 4.5% this spring, assuming there is a house we want.



Going from 4.5% to 6% means I am going to need a 14% reduction in purchase price just to break-even and a 14% will be hard to come by in Irvine based on recent prices. Given that our ownership horizon is probably 20-25 years, I'd love to lock up 4.5% on a 30-year fixed, get my $500K loan, and forget about it. The house will be worth the same in 20-25 years no matter what interest rate I am paying. If I'm saving interest expense over the life of the loan, why not?
 
I would buy only at rental parity, taking into account all the expenses of ownership, and only if I was certain rents wouldn't drop. It's the only way I'm willing to accept the risk of falling home value. Where I'm at this pencils out to pretty close to 0%.
 
[quote author="Daedalus" date=1228810983]I would buy only at rental parity, taking into account all the expenses of ownership, and only if I was certain rents wouldn't drop. It's the only way I'm willing to accept the risk of falling home value. Where I'm at this pencils out to pretty close to 0%.</blockquote>


I did a rental parity calc on a listed property in my neighborhood recently. At a purchase price of $850K (it was listed for $880K) and a 5.5% mortgage rate with $400K down, it was a couple of hundred above rental parity. At 4.5%, its at parity. Interestingly enough, I think it went into escrow for $825-850K.
 
Hehe... considering my huge loss... those should be down payment percentages.



I really want to see prices get down to rental parity. Right now... I can rent places that cost $1.5 mil for the parity of a $890k house. Interest rates have to get really low in order for me to jump back in... and well... I have to find a down payment somewhere.
 
How do you account for the possibility of rents declining in doing those calculations? do you do model scenarios? e.g. rent down 10%, 20%, 30%?
 
[quote author="freedomCM" date=1228816962]How do you account for the possibility of rents declining in doing those calculations? do you do model scenarios? e.g. rent down 10%, 20%, 30%?</blockquote>


I don't. I am only talking about rental parity today, not at any future points. Why would I model declining rents? Maybe rents will go up? I imagine over 20-25 years, they could cycle a couple of times.
 
[quote author="ipoplaya" date=1228810653]I'll be a buyer at 4.5% this spring, assuming there is a house we want.



Going from 4.5% to 6% means I am going to need a 14% reduction in purchase price just to break-even and a 14% will be hard to come by in Irvine based on recent prices. Given that our ownership horizon is probably 20-25 years, I'd love to lock up 4.5% on a 30-year fixed, get my $500K loan, and forget about it. The house will be worth the same in 20-25 years no matter what interest rate I am paying. If I'm saving interest expense over the life of the loan, why not?</blockquote>


Why pull the trigger at 4.5% when it will get near 0% as foreclosures accelerate after the baby boomers overspend on Christmas gifts for their ugly and spoiled grandkids and Uncle Sam will have to do the Post-Christmas My Credit Card Bill Is Due Bail Out!
 
[quote author="norcaljeff" date=1228821431][quote author="ipoplaya" date=1228810653]I'll be a buyer at 4.5% this spring, assuming there is a house we want.



Going from 4.5% to 6% means I am going to need a 14% reduction in purchase price just to break-even and a 14% will be hard to come by in Irvine based on recent prices. Given that our ownership horizon is probably 20-25 years, I'd love to lock up 4.5% on a 30-year fixed, get my $500K loan, and forget about it. The house will be worth the same in 20-25 years no matter what interest rate I am paying. If I'm saving interest expense over the life of the loan, why not?</blockquote>


Why pull the trigger at 4.5% when it will get near 0% as foreclosures accelerate after the baby boomers overspend on Christmas gifts for their ugly and spoiled grandkids and Uncle Sam will have to do the Post-Christmas My Credit Card Bill Is Due Bail Out!</blockquote>


I might be going out on a limb, but I've waited for a long time to see 4.5% fixed with no points, haven't seen it yet. My guess is that it will probably go that low (for me, I'm talking about a refi and possibly a 20 year) at some point but I don't think it will ever go any lower. Has anyone seen anything lower than 5% with no points, ever? Just curious.
 
[quote author="Daedalus" date=1228810983]I would buy only at rental parity, taking into account all the expenses of ownership, and only if I was certain rents wouldn't drop. It's the only way I'm willing to accept the risk of falling home value. Where I'm at this pencils out to pretty close to 0%.</blockquote>


Below rental parity. Couple reasons:



First you're locked in. As IR's blog entry showed today, when rates move, your price is going no where. Secondly, I suspect lots of softness in the near term rental market.



Finally, and more importantly, where exactly is the market?
 
[quote author="tmare" date=1228821881][quote author="norcaljeff" date=1228821431][quote author="ipoplaya" date=1228810653]I'll be a buyer at 4.5% this spring, assuming there is a house we want.



Going from 4.5% to 6% means I am going to need a 14% reduction in purchase price just to break-even and a 14% will be hard to come by in Irvine based on recent prices. Given that our ownership horizon is probably 20-25 years, I'd love to lock up 4.5% on a 30-year fixed, get my $500K loan, and forget about it. The house will be worth the same in 20-25 years no matter what interest rate I am paying. If I'm saving interest expense over the life of the loan, why not?</blockquote>


Why pull the trigger at 4.5% when it will get near 0% as foreclosures accelerate after the baby boomers overspend on Christmas gifts for their ugly and spoiled grandkids and Uncle Sam will have to do the Post-Christmas My Credit Card Bill Is Due Bail Out!</blockquote>


I might be going out on a limb, but I've waited for a long time to see 4.5% fixed with no points, haven't seen it yet. My guess is that it will probably go that low (for me, I'm talking about a refi and possibly a 20 year) at some point but I don't think it will ever go any lower. Has anyone seen anything lower than 5% with no points, ever? Just curious.</blockquote>


Someone I talked to said he got 4 and 7/8 for a 15 year mortgage.
 
[quote author="norcaljeff" date=1228821431][quote author="ipoplaya" date=1228810653]I'll be a buyer at 4.5% this spring, assuming there is a house we want.



Going from 4.5% to 6% means I am going to need a 14% reduction in purchase price just to break-even and a 14% will be hard to come by in Irvine based on recent prices. Given that our ownership horizon is probably 20-25 years, I'd love to lock up 4.5% on a 30-year fixed, get my $500K loan, and forget about it. The house will be worth the same in 20-25 years no matter what interest rate I am paying. If I'm saving interest expense over the life of the loan, why not?</blockquote>


Why pull the trigger at 4.5% when it will get near 0% as foreclosures accelerate after the baby boomers overspend on Christmas gifts for their ugly and spoiled grandkids and Uncle Sam will have to do the Post-Christmas My Credit Card Bill Is Due Bail Out!</blockquote>


Well, those things might happen, or they may not.



A year ago, many people here on good ole IHB (myself included to some degree) thought Irvine prices would fall 20% over the next twelve months, that foreclosures would be swamping inventory, and that interest rates would be higher due to inflationary pressures. Very little of that has come to pass. Inventory is low and getting lower as fewer and fewer foreclosures have moved through the system and sales have picked up. Interest rates are low and getting lower as well... Rents may be down today, but who knows what they will be next year.
 
If government subsidized 4.5% interest rates become reality, and I think they will, sellers will immediately adjust prices upward, thereby negating any anticipated savings from lower interest rates. Buyers will be competing with other 4.5% interest rate buyers. Prices + interest rates = unaffordability, and that will take time to change. Government intervention will only make matters worse. And I am an optimist.



Hasn't anybody learned anything from China, The Soviet Union, and Cuba?
 
[quote author="awgee" date=1228828529]If government subsidized 4.5% interest rates become reality, and I think they will, sellers will immediately adjust prices upward, thereby negating any anticipated savings from lower interest rates. Buyers will be competing with other 4.5% interest rate buyers. Prices + interest rates = unaffordability, and that will take time to change. Government intervention will only make matters worse. And I am an optimist.



Hasn't anybody learned anything from China, The Soviet Union, and Cuba?</blockquote>
I'm right there with ya on this one AWGEE, the more the gov't keeping interupting the free market forces the longer and more painful this housing downturn may be. Hell, at this rate their efforts may result in flat housing prices for at least a decade if not longer.
 
The rental market is actually pretty soft right now.



Some of it is due to people expecting more than what comparable rents are on similar houses so they linger pretty long.



Or maybe it's just this time of year.
 
The talk tonight was instead of, or in addition too, the govt will require principle be reduced on this delinquent loans. I guess as long as they are allowed to make and break the rules, all bets are off. They could sign a bill mandating that all home owners make money on their loans for all we know. The people on the sidelines will most likely get screwed no matter what.
 
Excuse me while I'm bitter for minute.



My tax money will be used to keep people that couldn't really afford the home in the home I wanted but didn't get because they IMHO, foolishly spent more on it they should have and out bid me for it. But now, due to cramdowns, or encouraged renegotiations or mortgage workouts or subsidized interest rates, will get the home, that I wanted, for a price or payments less than I was willing to pay because they were willing to squat in it.



Apparently, I'm the fool. I'm the ant in the grasshopper and ant fable and the Government is going to force us all the carry the grasshoppers.
 
[quote author="awgee" date=1228828529]If government subsidized 4.5% interest rates become reality, and I think they will, sellers will immediately adjust prices upward, thereby negating any anticipated savings from lower interest rates. Buyers will be competing with other 4.5% interest rate buyers. Prices + interest rates = unaffordability, and that will take time to change. Government intervention will only make matters worse. And I am an optimist.



Hasn't anybody learned anything from China, The Soviet Union, and Cuba?</blockquote>


I am surprised more people are not making this comparison. We are moving toward centralized government planning. A 4.5% government subsidized interest rate puts the government in control of prices. As they raise rates, prices go down. As they lower rates prices go up. I see no difference between where we are headed and where the Soviet Union was before their collapse.
 
[quote author="awgee" date=1228828529]If government subsidized 4.5% interest rates become reality, and I think they will, sellers will immediately adjust prices upward, thereby negating any anticipated savings from lower interest rates. Buyers will be competing with other 4.5% interest rate buyers. Prices + interest rates = unaffordability, and that will take time to change. Government intervention will only make matters worse. And I am an optimist.



Hasn't anybody learned anything from China, The Soviet Union, and Cuba?</blockquote>


I'd was more willing to say Japan. But that's just me and the analogy isn't quite the same.



-bix
 
I'm inclined to think that if the government imposes more control over prices, the consumers would simply respond by forming co-ops.
 
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