paperboyNC
New member
I thought this deserved its own thread:
Obviously everyone is predicting interest rate increases are going to kill housing prices so let's do some math. On a $400,000 mortgage:
3%: $1,686/mo (ARM)
4%: $1,910/mo (now)
5%: $2,147/mo (last seen in 2010)
6%: $2,398/mo (last seen in 2008)
7%: $2,661/mo (last seen in 2002)
8%: $2,925/mo (last seen in 2000)
9%: $3,218/mo (last seen in 1995)
Source:http://www.freddiemac.com/pmms/pmms30.htm
Heck, in 1981 when my parents bought their first home, rates were 18%
So let's say that by 2020 rates are at 6% (my prediction). How will that effect housing prices if all else is equal and inflation is at 3%?
$500,000 home currently:
$1,910/mo for $400k mortgage
$500/mo for property tax
$200/mo HOA
----------
$2,610/mo
in 2020 @ $2,610/mo now will be equivalent to $3,026/mo after 3% per year in inflation
$500,000 home:
$2,398/mo mortgage
$500/mo property tax
$200/mo HOA
$3,098/total
So to keep the same inflation adjusted payment the home price would fall to:
$490,000 home (still $100k down):
$2,338/mo mortage
$490/mo property tax
$200/mo HOA
$3,028/total
That's one way to think about the interest rate / home price relationship and shows that a gradual rise in 30yr mortgage rates over the next few years that is expected will likely just flatten out home prices rather than cause another crash.
So the next question is: Are home prices too high now?
Since typically the question is buying vs renting,http://www.ocregister.com/articles/month-648388-rent-county.html
Feeling the pinch? Local rent prices hit a record high
Last year, asking rents for large-complex apartments in Orange County jumped 4.8 percent, according to a report from RealFacts, an apartment tracking service. And with vacancy rates low (5.2 percent), rents are likely to go nowhere but up.
Orange County apartment landlords were asking an average of $1,781 a month for vacant units in large apartment complexes in the fourth quarter, up $81 from a year ago to an all-time high, according to RealFacts.
The biggest increase last quarter was for three-bedroom townhomes, which were up $108 per month, to $2,736 a month, RealFacts figures show. That?s a gain of 4.1 percent from a year earlier.
--------------
Rent vs Buy comparison for a 3bd room townhome. Let's say a buying a 3bd room townhome. I'd guess the median Orange County price for one is $500K (couldn't find an easy source for this).
Renting: $2,736/mo
Buying:
$167/mo $100K down (would have earned 2% in safe tax-free investments) = $167/mo in opportunity cost
$1,686/mo 3% ARM mortgage of $400K
$500/mo property tax
$200/mo HOA
$50/mo insurance
----------------------
$2,603/mo to buy
Buying also gives you tax deductions, chance for appreciation, etc.
So right now, buying is cheaper than renting if you can use the tax deduction, and even modest increases in interest rates will keep home prices flat.
FYI - I had dozens of friends and family tell me to buy in 2006 and I refused because the same math showed that we were in a ridiculous bubble.
Bullsback said:
Obviously everyone is predicting interest rate increases are going to kill housing prices so let's do some math. On a $400,000 mortgage:
3%: $1,686/mo (ARM)
4%: $1,910/mo (now)
5%: $2,147/mo (last seen in 2010)
6%: $2,398/mo (last seen in 2008)
7%: $2,661/mo (last seen in 2002)
8%: $2,925/mo (last seen in 2000)
9%: $3,218/mo (last seen in 1995)
Source:http://www.freddiemac.com/pmms/pmms30.htm
Heck, in 1981 when my parents bought their first home, rates were 18%
So let's say that by 2020 rates are at 6% (my prediction). How will that effect housing prices if all else is equal and inflation is at 3%?
$500,000 home currently:
$1,910/mo for $400k mortgage
$500/mo for property tax
$200/mo HOA
----------
$2,610/mo
in 2020 @ $2,610/mo now will be equivalent to $3,026/mo after 3% per year in inflation
$500,000 home:
$2,398/mo mortgage
$500/mo property tax
$200/mo HOA
$3,098/total
So to keep the same inflation adjusted payment the home price would fall to:
$490,000 home (still $100k down):
$2,338/mo mortage
$490/mo property tax
$200/mo HOA
$3,028/total
That's one way to think about the interest rate / home price relationship and shows that a gradual rise in 30yr mortgage rates over the next few years that is expected will likely just flatten out home prices rather than cause another crash.
So the next question is: Are home prices too high now?
Since typically the question is buying vs renting,http://www.ocregister.com/articles/month-648388-rent-county.html
Feeling the pinch? Local rent prices hit a record high
Last year, asking rents for large-complex apartments in Orange County jumped 4.8 percent, according to a report from RealFacts, an apartment tracking service. And with vacancy rates low (5.2 percent), rents are likely to go nowhere but up.
Orange County apartment landlords were asking an average of $1,781 a month for vacant units in large apartment complexes in the fourth quarter, up $81 from a year ago to an all-time high, according to RealFacts.
The biggest increase last quarter was for three-bedroom townhomes, which were up $108 per month, to $2,736 a month, RealFacts figures show. That?s a gain of 4.1 percent from a year earlier.
--------------
Rent vs Buy comparison for a 3bd room townhome. Let's say a buying a 3bd room townhome. I'd guess the median Orange County price for one is $500K (couldn't find an easy source for this).
Renting: $2,736/mo
Buying:
$167/mo $100K down (would have earned 2% in safe tax-free investments) = $167/mo in opportunity cost
$1,686/mo 3% ARM mortgage of $400K
$500/mo property tax
$200/mo HOA
$50/mo insurance
----------------------
$2,603/mo to buy
Buying also gives you tax deductions, chance for appreciation, etc.
So right now, buying is cheaper than renting if you can use the tax deduction, and even modest increases in interest rates will keep home prices flat.
FYI - I had dozens of friends and family tell me to buy in 2006 and I refused because the same math showed that we were in a ridiculous bubble.
