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pkbarnhart
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Several years ago I had a conversation with the local Ford dealer about buying a truck. He commented that "It doesn't matter to most buyers what the sticker price is... they only want to know what the monthly payment is." I never paid much attention to this until recently in my local market.
Local conditions can best be summed up as "very soft". About 20% of my work are foreclosures, 20% sales (some of the same foreclosures) and 60% refinances. What is amazing to me is that sales prices have held up pretty well even with the large supply of homes listed for sale. I have talked to several local realtors who indicated essentially the same as the car dealer. "It doesn't matter what the sticker price is as long as the buyer can make the payment".
Some of my initial thoughts are:
The "market" whatever that entity is, is incredibly efficient and changes rapidly. Along with this is the socio-economic status that each of us has in the country. For example in my area we have a large "service worker" population that tends to purchase homes in one area and we have several "factory workers" that tend to purchase homes in another area. Prices in both of these areas should have dropped in the past few years due to the high inventory of homes available. They have not dropped however and I think that this is due to the monthly cost of purchaseing a home.
A while back when interest rates were at say 8% a $100,000 mortgage would cost approx. $733/month (without taxes and insurance). Today with rates at 6% or so that same $733/month will buy a $122,000 home. It appears as if the "market" has rebalanced itself with higher sales prices based upon that same "$733/month". The scary part about this scenario, if I am right, is what will happen if and when interest rates go up again. I would imagine that a good portion of the real estate "bubble" in the country is fueled by these low rates. I predict the bubble with begin to burst with any increase in interest rates.
There appears to be little difference in the typical buyer's mind between a $100,000 home at 8% and a $122,000 home at 6%. In fact they may be two identical properties. I have a brother in law that carries several seconds on homes and he often tells stories about borrowers who won't pay 12% interest, but have no problem paying 8% interest with points charged with the same monthly payment. They just don't want to have to tell anyone that they are paying 12%.
Any thoughts?
Local conditions can best be summed up as "very soft". About 20% of my work are foreclosures, 20% sales (some of the same foreclosures) and 60% refinances. What is amazing to me is that sales prices have held up pretty well even with the large supply of homes listed for sale. I have talked to several local realtors who indicated essentially the same as the car dealer. "It doesn't matter what the sticker price is as long as the buyer can make the payment".
Some of my initial thoughts are:
The "market" whatever that entity is, is incredibly efficient and changes rapidly. Along with this is the socio-economic status that each of us has in the country. For example in my area we have a large "service worker" population that tends to purchase homes in one area and we have several "factory workers" that tend to purchase homes in another area. Prices in both of these areas should have dropped in the past few years due to the high inventory of homes available. They have not dropped however and I think that this is due to the monthly cost of purchaseing a home.
A while back when interest rates were at say 8% a $100,000 mortgage would cost approx. $733/month (without taxes and insurance). Today with rates at 6% or so that same $733/month will buy a $122,000 home. It appears as if the "market" has rebalanced itself with higher sales prices based upon that same "$733/month". The scary part about this scenario, if I am right, is what will happen if and when interest rates go up again. I would imagine that a good portion of the real estate "bubble" in the country is fueled by these low rates. I predict the bubble with begin to burst with any increase in interest rates.
There appears to be little difference in the typical buyer's mind between a $100,000 home at 8% and a $122,000 home at 6%. In fact they may be two identical properties. I have a brother in law that carries several seconds on homes and he often tells stories about borrowers who won't pay 12% interest, but have no problem paying 8% interest with points charged with the same monthly payment. They just don't want to have to tell anyone that they are paying 12%.
Any thoughts?