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Old 10-01-2014, 06:25 PM
 
33 posts, read 85,295 times
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It's almost comical how some of the price-drops on ~$500K homes are in the range of $1K - $2K... Is the owner thinking that that marginal of a difference in price is suddenly going to attract buyers?
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Old 10-02-2014, 10:16 AM
 
Location: Business ethics is an oxymoron.
1,891 posts, read 2,280,123 times
Reputation: 3991
Quote:
Originally Posted by Teckeeee View Post
Once Janet Yellen at the Fed pulls the plug watch the housing and stock market tank. Cheap money ain't so cheap.
Not that I disagree with this basic premise, but from a consumers bottom line, dollars and sense perspective, would that even matter? Would falling prices be enough to offset skyrocketing interest?

To use some conjured up, oversimplified numbers to illustrate my point...

500k house at 4.5 pct interest comes to roughly $3500 monthly payment.

Let's say interest rates shoot up to 8% and the market takes a 20% hit, which many would see as damaging, if not catastrophic.

So a 500k house is now "only" 400k. But the interest rate is almost doubled, so wouldn't the monthly payment still be in the $3500/mo ballpark-if not actually higher?

Yes, on paper, the house IS cheaper. But that's really just an academic technicality if the end result is the same or only negligible difference. $3500 is $3500 regardless of how it's allocated or where it goes. The total amortization costs would be about the same. How do you have one or the other that still lowers both the price and amount of money spent?

And that, at least in OC, is not something I see happening under any scenario anytime soon.

So buy now or be priced out forever!

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Old 10-02-2014, 04:15 PM
 
Location: So Ca
15,805 posts, read 15,046,279 times
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Quote:
Originally Posted by Des-Lab View Post
Let's say interest rates shoot up to 8% and the market takes a 20% hit, which many would see as damaging, if not catastrophic.
Mortgage interest rates would never increase that much in a short span of time, so that isn't really a valid example.
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Old 10-02-2014, 05:20 PM
 
3,339 posts, read 2,084,387 times
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inflation should be accompanied by economic growth. no growth, no increase in interest
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Old 10-02-2014, 06:19 PM
 
18,460 posts, read 20,232,840 times
Reputation: 27031
Quote:
Originally Posted by Des-Lab View Post
Not that I disagree with this basic premise, but from a consumers bottom line, dollars and sense perspective, would that even matter? Would falling prices be enough to offset skyrocketing interest?

To use some conjured up, oversimplified numbers to illustrate my point...

500k house at 4.5 pct interest comes to roughly $3500 monthly payment.

Let's say interest rates shoot up to 8% and the market takes a 20% hit, which many would see as damaging, if not catastrophic.

So a 500k house is now "only" 400k. But the interest rate is almost doubled, so wouldn't the monthly payment still be in the $3500/mo ballpark-if not actually higher?

Yes, on paper, the house IS cheaper. But that's really just an academic technicality if the end result is the same or only negligible difference. $3500 is $3500 regardless of how it's allocated or where it goes. The total amortization costs would be about the same. How do you have one or the other that still lowers both the price and amount of money spent?

And that, at least in OC, is not something I see happening under any scenario anytime soon.

So buy now or be priced out forever!

But you have options with the lower house price

You can put more down. Ok say I have 120k saved up right now for 20% at current prices for a 600k house. Which for me its at the upper tier of what I'm willing to pay for a mortgage. Now the same house say it has a 20% price drop ( which imo is the % overpticing of OC RE) for the current economy. And before you laugh I'm seeing 10% price drops. The other sellers are too stubborn to drop prices.
Now the house is 480k. Now my old 120k down instead of being 20% it's now 25%.

This lower price and higher down in turn does a few things.

1. Property taxes are now lower.
2. Can pay more to principal
3. If rates go lower later you can refi to a lower rate and a shorter loan time
4. And when house prices do go up you get more equity ( this to me is the least important thing as the equity to me is unlocked only if you sell. Since I gotta live somewhere I want to live under my rules not a LL rules)
5. Less chance of just walking away if you got a 20-25% down. More "skin" in the game.


Ultimately lower house purchase price gives you a lot more options and ways out than the high prices of today's marker.
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Old 10-02-2014, 07:17 PM
 
Location: Corona the I.E.
10,078 posts, read 14,047,183 times
Reputation: 8925
Quote:
Originally Posted by Electrician4you View Post
5. Less chance of just walking away if you got a 20-25% down. More "skin" in the game.
That is a critical point which should not be overlooked. It was easy last collapse to walk away many had little to no skin in the game.
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Old 10-03-2014, 06:38 AM
 
Location: Southern California
4,431 posts, read 5,309,578 times
Reputation: 2192
Quote:
Originally Posted by Des-Lab View Post
Not that I disagree with this basic premise, but from a consumers bottom line, dollars and sense perspective, would that even matter? Would falling prices be enough to offset skyrocketing interest?

To use some conjured up, oversimplified numbers to illustrate my point...

500k house at 4.5 pct interest comes to roughly $3500 monthly payment.

Let's say interest rates shoot up to 8% and the market takes a 20% hit, which many would see as damaging, if not catastrophic.

So a 500k house is now "only" 400k. But the interest rate is almost doubled, so wouldn't the monthly payment still be in the $3500/mo ballpark-if not actually higher?

Yes, on paper, the house IS cheaper. But that's really just an academic technicality if the end result is the same or only negligible difference. $3500 is $3500 regardless of how it's allocated or where it goes. The total amortization costs would be about the same. How do you have one or the other that still lowers both the price and amount of money spent?

And that, at least in OC, is not something I see happening under any scenario anytime soon.

So buy now or be priced out forever!

So I looked at a couple of scenarios of 5 years from today
Scenario 1) 30 year 5-1 ARM 2.75% ARM 600,000 sale price, $120,000 down, 1.125% Property tax of $562 Month, Monthly $2522. Balance after 60 month $424,780. Cumulative interest paid $62,353, and 34,000 in property taxes , about 96,000 in deductions. Say 35 % tax refund $33,600, roll that into paying down your balance 424,780 -33,600 = 391,980 balance after 5 year. Refinance to a 6% fixed in 5 year with a new balance of 392,000 and your mortgage is 2525, total monthly of $2947 including taxes.

Scenario 2) Rent 5 years at $2500 a month then get a 25 year at 6%, $450,000 sale price, $120,000 down, Property tax $421, monthly payment of $2548 month. Your initial Loan balance would start at $329,500.

So you are looking at a $60,000 difference between the two. Change the Scenario 2 rent to $3,000 a month and the difference in 5 years is $30,000, which isn't even the price of a family car in 5 years.

These are just sample numbers to chew on, but in this scenario waiting 5 years and if rates at at 6% and prices decline and the cost of living stays the same, you are looking at saving at least $60,000
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