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Home prices tend to be a function of 30-yr mortgage payments. $1.5m @ 2.50% yielded a ~$6k/mo P&I payment last year $868k @ 7.25% yields a ~$6k/mo P&I payment
by datalopers 4y ago
Home prices tend to be a function of 30-yr mortgage payments.
$1.5m @ 2.50% yielded a ~$6k/mo P&I payment last year
$868k @ 7.25% yields a ~$6k/mo P&I payment currently.
The price of this theoretical home need to drop ~40% to result in the same monthly payment. Home prices won't drop until people are forced to sell and widespread layoffs are just the catalyst necessary.
- metadat 4y agoSure, I follow. At the same time, we've still got tons of all-cash buyers in the Bay Area. Those $6.5m+ POS properties are still selling like hot cakes (surprisingly). Outside of SV, I expect you'll see such a drop.
- datalopers 4y agoI agree it may be a bit more muted in the Bay area, though in dotcom we saw a 10% retraction and great-recession saw a 30% retraction.
- Hermitian909 4y agoI'm curious how many are paying cash and how many are using delayed financing to make cash offers? The latter is usually just a mortgage + a fee to get the advantage of a cash offer. I know these shot up in popularity during covid but I don't know where you'd find stats on the split. Point being, if most of those cash offers are really a 30-year mortgage in a trench coat, the peninsula might slump very quickly in the near future.
- metadat 4y agoReal estate isn't my full-time job at the moment, so I'm the wrong person to ask! All I can say is there's still a ton of cash sloshing around Silicon Valley. It could be awhile before is dried out, if ever. The VCs still have a ton of dry powder and they aren't moving out of Sandhill.
- spoils19 4y agoThanks for this, the logic looks sound and flawless. I'll definitely be using this when making future valuations with lenders.
- YZF 4y agoRent also comes into play. But just like any market the prices may not be connected to those fundamentals. It depends on expectations. But yes, the perfect storm was always going to be rates going up and a recession and if this isn't the perfect storm then what is. Well, my house is up 40% since I bought it exactly two years ago so I think I'll survive (I knew I was taking some risk). [EDIT: Not in the Bay Area]
- wankerrific 4y agoNo one got a $1.5m loan @ 2.5%. More like 3.25%
- plasticchris 4y agoIt was definitely possible for those with 800+ credit shopping around last year. The online stats don’t reflect the best case scenario.