Author Topic: Speculation: Are home values artificially high because of Low interest rates?  (Read 2957 times)

SSkilling22

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For the record, I think it's very hard to time financial markets, and I put all of my equity investments in an S&P 500 index, International index, and some bonds.

I currently own 1 rental property and am cash flowing nicely. Due to low interest rates, now seems to be a great time to borrow money IF the money borrowed is not for an overvalued asset.

I acknowledge that this is speculation, but does it seem wise to wait on purchasing real estate for investment purposes during such a hot housing market?

If you recommend purchasing anyway, what margin of error do you need to make sure that cash flow would carry you through a bear market in which over all value and rental income would decrease?

Appreciate the thoughts!

forummm

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Yes, home prices (and stock prices and bond prices, etc) are higher because interest rates are lower. That's one reason why governments keep interest rates lower--to stimulate economic activity. But how much they will change (or even how much the interest rates will change) is unknowable. Just go with a good AA strategy and stick with it.

oldmannickels

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Was just talking to a friend about this but we were talking about personal home purchases.

In theory interest rates go up, home prices go down.

In areas where most people are homeowners I don't think a small rise in interest rates will have an effect on home buying power and will probably not change the way most people would go about determining how much they should spend on a house.

Drifterrider

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Was just talking to a friend about this but we were talking about personal home purchases.

In theory interest rates go up, home prices go down.

In areas where most people are homeowners I don't think a small rise in interest rates will have an effect on home buying power and will probably not change the way most people would go about determining how much they should spend on a house.

Prices might go down but cost would probably go up.  Most people are monthly buyers (despite what you see on TV).  They establish how much per month they can afford, then they find a way to spend it.

Most of the readers here determine what is the minimum we must have, then ask for a discount :)

NoNonsenseLandlord

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All costs factor into the price of a home.  If interest rates are down, home prices go up.

Another thing to consider, long term, is the wages of the buyers.  All indicators point to a declining average hourly wage.  That will have a major long term effect on housing.

forummm

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And home prices tend to be somewhat sticky. It's harder for them to go down. People have a psychological aversion to selling for less than they paid or less than they thought it was worth recently. Even if it's the best decision for them financially, they will often hold out until they can get the price they want (and even if it costs them way more in carrying costs).


jooles

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Yes.

Think the subprime era is gone.  Think again.

The USDA is guaranteeing loans in rural areas that allow buyers to purchase real estate with 0% down. 

In my book if you have zero cash, you have zero right to purchase real estate.

Too many buyers in the marketplace = competition that drives up prices.


Dicey

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When the market dumped, a lot of properties were scooped up by investors and became rentals. It's kind of like when you get an easy commute because it's some obscure holiday. It doesn't take a lot fewer cars on the road to ease the congestion dramatically. Since a good number of single family homes were taken out of circulation, there are fewer homes available to buy. This, along with low interest rates are goosing the sales prices of existing homes, IMHO. If all the investors decide to sell at the same time the rates increase, i.e. better opportunities for investing, then the shit could really hit the fan. One without the other worries me less. That, and the fact that I'm not counting the value of my paid-for home in my net worth.

While I'm thinking about this subject, what worries me more long-term is the number of millennials who do not plan on buying homes. In my town, they are building crazy expensive apartments everywhere and the young 'uns are snapping them up. If this continues for long, it could most definitely have a negative impact on prices. Time to buy apartment buildings, I guess.

jooles

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where i live about 20% of homes are vacant.  all those vacant properties are reducing the inventory available for immediate purchase.  demand drives price.  there are simply not enough properties on the market here.