Housing Bottom? (Orange, Costa Mesa, Williams: sale, condos, houses)

[BRinSM]

what i'm having a difficult time grasping, and maybe some of you here can help me out, is the correlation between interest rates and home prices. i've heard from some people that home prices are currently being held up by the record low interest rates that we're experiencing right now. this is helping people who are buying homes keep their mortgage payments down. others say that interest rates shouldn't be a factor, only the prinicipal portion of your mortgage because that is the basis for how much money you will make when you sell your house. Where I get confused though is in the equity. if you have a lower interest rate, won't you being paying more towards your princpal every month? Everthing else equal, if interest rates go up by 30%, does that equal a principal reduction of 30%. I'm new to all of this so I'm not sure.

[Charles]

Originally Posted by BRinSM

what i'm having a difficult time grasping, and maybe some of you here can help me out, is the correlation between interest rates and home prices. i've heard from some people that home prices are currently being held up by the record low interest rates that we're experiencing right now. this is helping people who are buying homes keep their mortgage payments down. others say that interest rates shouldn't be a factor, only the prinicipal portion of your mortgage because that is the basis for how much money you will make when you sell your house. Where I get confused though is in the equity. if you have a lower interest rate, won't you being paying more towards your princpal every month? Everthing else equal, if interest rates go up by 30%, does that equal a principal reduction of 30%. I'm new to all of this so I'm not sure.

Imagine if the interest rate was 0%, then number of payments * payments amount = amount you borrowed. With interest (like 5%), # of payments * payment amount is greater than amount borrowed.

As far as interst rate going up by 30%, it would be illustrative to pop several numbers into a spreadsheet and see for yourself what effects a rise in interest rates would have. I don't think it is linear.

[CMartel2]

Originally Posted by BRinSM

Everthing else equal, if interest rates go up by 30%, does that equal a principal reduction of 30%. I'm new to all of this so I'm not sure.

Well, not really. Interest rates keep compounding over time and have a multiplier effect. If your interest rate goes up by 30%, you're going to be paying 30% less principal than you did before. This 30% principal you didn't pay is then multipled again by the interest rate come next payment.

Thus, you end up paying a lot more over time.

I'm not sure if that's what you were asking, but that was my take.

And yes, I do think the low interest rates are helping to curb the fall of real estate prices (or really, prolong the inevitable). That said, they are helping responsible buyers who can still qualify for loans purchase homes and start their lives. That said, taking on the illusion that you can buy more house than you should be able to afford because of low interest rates is what got us into this mess in the first place....

[starlight1589]

a couple of years for sure

[serialdriller]

perhaps end of this year or next year..........

Unemployment is on the rise.... no jobs = no money = more forclosures = more home inventory = house prices going down....

its real tough times right now.... Just the other day a guy killed his whole family and then blew his brains out over getting laid off and having debt!!!

[dfarmer002]

Finally, one of the preceding posters taps one of the big issues that always gets glossed over in these discussions and by those in the real estate world..that is median family incomes in the market. We all get hung up looking at foreclosure rates, demand because oc is such a wonderful place, etc etc. The fact people miss is that irrespective of what sales are doing and demand is, if the median incomes of the average buyer only supports "X" in purchase price through the ability to actually pay that note, that will be what the median home prices correct to. And as said above, a guy making 80,000 a year can simply only pay for so much loan. That will be the number that predicts and corrects the future market. So when we reach a point that the average surburban orange countian can afford a house, that will be the bottom. I agree, especially with job losses, that will be way out in the future.

[BRinSM]

Originally Posted by dfarmer002

Finally, one of the preceding posters taps one of the big issues that always gets glossed over in these discussions and by those in the real estate world..that is median family incomes in the market. We all get hung up looking at foreclosure rates, demand because oc is such a wonderful place, etc etc. The fact people miss is that irrespective of what sales are doing and demand is, if the median incomes of the average buyer only supports "X" in purchase price through the ability to actually pay that note, that will be what the median home prices correct to. And as said above, a guy making 80,000 a year can simply only pay for so much loan. That will be the number that predicts and corrects the future market. So when we reach a point that the average surburban orange countian can afford a house, that will be the bottom. I agree, especially with job losses, that will be way out in the future.

although I agree with much of what you said, i don't think the average orange countian (in general) will ever be able to afford a home here. It takes a lot of savings, and most people who would be considered average probably don't save enough to buy homes in OC because it is so expensive. Historically, Socal has a very high percentage of renters compared to elsewhere in the country. I don't expect that to change even if prices continue to decline. Considering that you need $80k in cash in order to have 20% down on a $400k house (which still won't get you much at this point), I don't expect the average OC resident to be able to qualify for a home.

[dfarmer002]

That may well be true..the whole point is I believe the home prices WILL FALL until it reached the level where the average guy can qualify for that house. And I should say when I say average oc redisdent.. I ficusing more on the average south oc ,working professional, type resident making the 80 k a year. Not the single mom making 35k living in an apt in anaheim.

[Charles]

(Originally posted on another thread and moved here...made more sense.)

Here are the loss leaders for zips with 30 or more sales (I filtered out less than 30 arbitrarily just because the range was 2 to 69).

Town ZIP Price Yr. chg. Sales (I wish City-Data would incorporate some sort of tabular formatting capability...)
San Juan Capo 92675 $227,500 -80.00% 39
Santa Ana 92701 $139,000 -51.90% 52
Lake Forest 92630 $300,000 -43.90% 54
Tustin 92780 $258,000 -41.40% 37
Santa Ana 92707 $229,000 -39.70% 58
Ladera Ranch 92694 $512,500 -39.70% 38
Laguna Hills 92653 $255,000 -38.90% 33

Other data points:
Trabuco/Coto 92679 $675,000 -24.90% 31

Mission Viejo 92692 $462,500 -9.50% 50
Mission Viejo 92691 $418,500 -28.60% 47

Aliso Viejo 92656 $461,500 -13.70% 69

Laguna Niguel 92677 $520,000 -20.90% 65

Rancho S. Margarita 92688 $398,000 -17.20% 42



from

Lansner on Real Estate - OCRegister.com

[MotleyCrew]

Originally Posted by ocexpo

I dont think the housing market will stay down much longer. Heres why:

Obama plans to give tax breaks and other incentives to the middle and lower classes. Given that their taxes will be lower, they will be willing to buy a home.

Also, I know SO MANY people who are waiting to get into the OC housing market hoping it hits "bottom." These people wont wait forever, and will probably just give in at some point, particularly when the economy looks like its recovering a little bit.

You will still need 20% down in most cases so the bailout will not have a positive effect on the housing market. Obama seems to be ignoring the housing mess for the time being. I hope he addresses it soon.