Quail Hill Comp Killer

[qwerty]

Regarding inflation, that is something that many people leave out of the equation, in addition to principal reduction when talking about home prices dropping.

What would anyone estimate the rate of decent by year for home values since 2006? 5% or 10% per year? Is Irvine down 25% or 50% from there? What is the current rate of decent now?

With qwerty's bubble-adjusted price... do anyone think Quail Hill SFRs are going to hit $625k?

i cant see the quail hill SFRs hitting 625K in the current interest rate environment.  rates would have to go up substantially to cause a massive price drop like that, and given the sellers mentality, as you have pointed out many times you would not get the initial proportionate decrease in price (not right away at least).

A home that cost 900K with 20% down and interest rate of 4.25% would have a principal and interest payment of $3,542.  If interest rates went up to 7%, in theory, that 900K home would have to go down to 665K to have the same principal and interest payment of $3,542.  This is what scares me the most about buying in a low interest rate environment. That is a drop of 235K.

 

[IndieDev]

This is what scares me the most about buying in a low interest rate environment. That is a drop of 235K.

And it should. Keeping the interest rate this low artificially is impossible to do in the long term without major economic consequences.

 

[usctrojancpa]

This is what scares me the most about buying in a low interest rate environment. That is a drop of 235K.

And it should. Keeping the interest rate this low artificially is impossible to do in the long term without major economic consequences.

I'll play devil's advocate here....what happens if these low interest rates are now the norm because we've become Japan 2.0 (slow growth for the foreseeable future without runaway inflation)?  I believe the 10-year bond in Japan has been hovering around 1%-2% for the past 15-20 years.  I would also argue that the FED doesn't have enough power to keep longer term interest rates low as the bond market is much bigger than what the FED can control.  The longer out on the yield curve you go, the less control the FED has on those rates.  It's inflation and growth expectations (along with default risk) that drive the bus on longer term yields.  I remember on IHB people were talking about rates going up to 6-7% when rates were in the low 5s.  What'd rates do instead, went down into the low 4s.  As the old saying goes....the market can say irrational longer than you can stay solvent (or sane). 

 

[qwerty]

These low rates could very well be the norm. It would just suck to buy now and find out they are not. With the US debt ballooning out of control u would think rates would be forced up, but at the same time, the US seems like it will always be the lesser of all evils so who the hell knows. I think in certain cases, such as in yours the numbers work out to well regardless of interest rates and worse case you can rent it out if prices come down if and when u try to sell.

 

[IndieDev]

This is what scares me the most about buying in a low interest rate environment. That is a drop of 235K.

And it should. Keeping the interest rate this low artificially is impossible to do in the long term without major economic consequences.

I'll play devil's advocate here....what happens if these low interest rates are now the norm because we've become Japan 2.0 (slow growth for the foreseeable future without runaway inflation)?  I believe the 10-year bond in Japan has been hovering around 1%-2% for the past 15-20 years.  I would also argue that the FED doesn't have enough power to keep longer term interest rates low as the bond market is much bigger than what the FED can control.  The longer out on the yield curve you go, the less control the FED has on those rates.  It's inflation and growth expectations (along with default risk) that drive the bus on longer term yields.  I remember on IHB people were talking about rates going up to 6-7% when rates were in the low 5s.  What'd rates do instead, went down into the low 4s.  As the old saying goes....the market can say irrational longer than you can stay solvent (or sane). 

Japan is different in that they actually experienced a long period of deflation. The U.S economy, with the exception of 2009, has experienced inflation throughout the downturn. I'm no fortune teller, but if inflation is consistent, I just don't see how it is possible for rates to stay this low a long period of time. Add the fact that Bernanke seems to have no problem printing greenbacks, it's kind of opposite to the response the Nichigin had when Japan's economic collapse began in earnest in the 1990s.

 

[usctrojancpa]

This is what scares me the most about buying in a low interest rate environment. That is a drop of 235K.

And it should. Keeping the interest rate this low artificially is impossible to do in the long term without major economic consequences.

I'll play devil's advocate here....what happens if these low interest rates are now the norm because we've become Japan 2.0 (slow growth for the foreseeable future without runaway inflation)?  I believe the 10-year bond in Japan has been hovering around 1%-2% for the past 15-20 years.  I would also argue that the FED doesn't have enough power to keep longer term interest rates low as the bond market is much bigger than what the FED can control.  The longer out on the yield curve you go, the less control the FED has on those rates.  It's inflation and growth expectations (along with default risk) that drive the bus on longer term yields.  I remember on IHB people were talking about rates going up to 6-7% when rates were in the low 5s.  What'd rates do instead, went down into the low 4s.  As the old saying goes....the market can say irrational longer than you can stay solvent (or sane). 

Japan is different in that they actually experienced a long period of deflation. The U.S economy, with the exception of 2009, has experienced inflation throughout the downturn. I'm no fortune teller, but if inflation is consistent, I just don't see how it is possible for rates to stay this low a long period of time. Add the fact that Bernanke seems to have no problem printing greenbacks, it's kind of opposite to the response the Nichigin had when Japan's economic collapse began in earnest in the 1990s.

I agree that we are not the same as Japan, but in many ways we are.  We have a bunch of zombie banks who use market-to-fantasy to value a good portion of their assets and the public in general still has a long way to go to deleverage itself.  With a stubbornly high unemployment rate and downward pressure on wages, you don't have the fuel to really get inflation going like it did in the 70s.  I don't see the job market really stabilizing until real estate rebounds, which can take years.  I would argue that all those dollars that uncle Ben has been printing have been going to replace the dollars that have disappeared thanks to defaulted loans.  There are just too many headwinds for inflation to really get out of control.  Heck, the ECB better start printing Euros to buy/monetize those Spanish and Italian bonds as that side of the pond will be in a serious world of hurt if they don't.

 

[IndieDev]

Well, then we would have the worst of both worlds, stagflation. Devaluation of assets (except Gold!!!), and artificially low interest rates.

You'd be able to buy a 4br home in Quail Hill for $150,000.

 

[Nous]

So, allow me to show some of my nubness in terms of econ, but can we really sustain the inflation we've had over the past few years?  Assuming at some point we get our national debt under control, would the strengthening of the dollar cause home prices to drop?

 

[irvinehomeowner]

Well, then we would have the worst of both worlds, stagflation. Devaluation of assets (except Gold!!!), and artificially low interest rates.

You'd be able to buy a 4br home in Quail Hill for $150,000.

Poor IndieDev, he forgot the extra 0.

Was cruising on Redfin today and looks like my favorite Plan 3s in Tapestry are now trading at about $1.5-1.6m.

That's like a 50% rise in less than 5 years!

Quail Hill is like the horn of the unicorn.