Home prices – what are so high?
It seems that the housing bubble has burst, but how you anyway home prices so high?
During his visit to San Francisco and surrounding areas recently (2008), my wife and I were surprised by the prices of houses. A house two rooms that could sell for $ 100.000 where we come from in Colorado was $ 600 000 times or more in San Francisco, Monterey or Santa Cruz or San Jose. And these high prices have been following the bursting of the housing bubble. At least that's what we think. But apparently parts of San Francisco Bay were seeing an increase in housing prices.
Other areas of California were hardest hit, of course. Some cities have seen prices drop by half in just a few years – not surprising for rest of the country in which we are all wondering how prices could be supported. However, the way they are so high in the first place? Households with an average of half a million dollars or more for the entire population? Some of these buyers need to have a regular job, which made $ 30.000 to $ 40.000 per year. No sense. Or no?
There are several factors that lead to high prices. Some of them are still in place, which could mean that prices do not fall much. Or it could that if and when these factors change, after steep falls on the road.
High prices lower interest rates
Take a pound of depreciation or find one of these online payment calculators and see what the payment would be in your home if you had an interest rate of 13.5%. The People pay the property in the 80's. For example, a 30-year loan of $ 200,000 it will cost you $ 2,292 of principal and interest each month.
The use of this payment, how much you can borrow at an interest rate of 5.5% – as little as my old adage accounting amortization. Paying the same each month, you can borrow $ 404,000. If you follow the calculation here, we can see that the selling price could be twice as high, yet you would pay about the same each month. It is clear that low interest rates allow people to pay a higher price. It's more complicated, of course, since prices certainly more than doubled in most regions since the 1980's.
Revenue was up
People are obviously able to pay more for housing as their income increases. Income that may be interested in owning a home when they start to do more, driving demand and prices therefore more high. The average income in this country was for some time. But this still does not explain the extreme. How, despite a decent income of $ 60,000 a year, we $ 600,000 to buy a house?
Evolution expectations
The housing bubble seems that people think house prices could rise faster than inflation yet – something a mathematician could refute in two minutes. They were convinced that the houses have been an excellent investment in any what price. Thus, while spending no more than 30% of their income for a household in the future, buyers started to spend up to half their pay in one payment mortgage.
There was a frenzy to get into the "game" while home prices are rising so fast. A couple can not really be able to buy a house, but he could buy on easy credit terms of the flight of their savings to make payments for a few years and then sell at a profit they ran out of money. Speculation, as has become common in California and Florida. The result? Money doing this. But with the fall of prices, there are record levels of foreclosures, and the game is over for now.
High prices – other factors
The Easy credit allows more people to buy. This increased demand has helped and pushed up prices. In the past, even those with a decent income to keep a payment initial, but no down payment mortgages has changed the situation. without interest-only loans – lending environment in California at the height of the bubble – held payments Low monthly. The $ 2,292 mentioned earlier pays for a loan of $ 500.000 if you only have to pay interest.
There is another factor we have discovered in San Francisco. We were told more than once that people are sharing houses everywhere. The NASA engineer said that when he lived in San Jose, most of the houses in suburban four families living there. It may be six or more of income help to make house payments.
The latter is a phenomenon cultural (mostly Asian or Hispanic). Many people born here do not like the idea of living with other families or living several to a room. However, those who are willing to do so have found the means to buy a house for $ 600,000. These buyers and the additional demand, which can contribute to real estate prices high in some areas.
Finally, a large part of the answer to how people can afford high house prices is that you can not really. We are seeing a record after another has been established for foreclosures across the country, and if we see interest rates rise, in addition, we will see prices fall further.
About the Author
Copyright Steve Gillman. To see a photo of the house we bought for $17,500, get a free Real Estate Investing Course, and to learn how to find cheap homes, visit: http://www.HousesUnderFiftyThousand.com
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