San Carlos Real Estate Agent, San Carlos Realtor The History of Interest Rates… | The White Oaks Blog
San Carlos Real Estate March 12, 2009

The History of Interest Rates…

by Chuck Gillooley

history-of-interest-rates1

’nuff said…

(graph courtesy of Colton Daines of Sage Trust)

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Comments 9
  • Chuck

    I don’t get it, what is the conclusion one should draw from the chart?

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    • Thanks for your question. I was trying to let the graph speak for itself and put into perspective that despite all the bad news about the economy and the housing market, interest rates are at their lowest level in over 30 years. Combine that with the recent drop in prices of homes in San Carlos, and it makes for one of the best buying opportunities in decades. Now, if we can only solve the unemployment problem…

      If a picture is worth a thousand words, this single picture tells quite a story.

      Thanks again for your question.

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      • To me it tells part of the tale of housing appreciation over the last 25 years. As you know, buyers qualify on payment, not price. Certainly San Carlos has seen appreciation for other reasons as well, First, a gentrification of sorts – I dont think dual income professional couples were the original target for the 3/1 1200 square footers in Howard Park. And the Bay Area has seen incredible growth in high tech and biotech. No doubt its a very wealthy place.

        alas, Obama’s reign is going to very unfriendly to biotech employment, and I dont think SF Bay will be the green tech bubble center.

        On a macro basis, at some point, the Chinese will grow weary of buying Treasuries, and long term interest rates will spike. 10% mortgage rates will create a real buying opportunity, if you have cash, because prices will fall sharply. How much income do you need to qualify for a $1M house when rates are 10%

        All told, I am Not sold that the next 25 years will be as good for housing as the last 25 were.

        Still, I need a place to live, so I will take the plunge soon. But every time I look prices are falling – 4/2s in belmont under 850K.

        With stock at 1997 levels, is it realistic to think that San Carlos Housing can stay at 2006 level? What did a 3/1 in Howard Park go for in 1997?

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        • Great points. MLS records only go back to 1998, but back then a 3/1 in Howard Park would fetch between $400k – 450k, or a bit less than half of what the same house would get today.

          There are several reasons why I believe home prices won’t behave like stock prices and drop back to the ’97 level, or anywhere near it…

          First, although house prices have doubled since then, many salaries have done the same. Back in ’97, an engineer in the valley would make about $100k. Today, it’s twice that (even in this economy.) Granted, not everyone is an engineer, but neither Google nor the entire biotech industry was around in ’97 either. As long as the valley creates new industries that generate high paying jobs, the home prices will remain relatively high.

          Second, unlike stocks, a home is a “usable asset” that provides not only physical shelter, but it is still the largest tax shelter available to most citizens. While stocks have experienced great appreciation over the past decade, they have never been able to offer the stability or tax benefits of real estate…which is why you’re seeing many investors jump out of stocks and into real estate.

          Finally, it comes down to demand. This area is still a place that people want to live, and the results are showing it. In San Carlos and Belmont, entry-level homes sales are still healthy. For example, in San Carlos in the sub $1M range, there are 28 active listings, and 13 homes pending sale. That’s a ratio of 2.2:1, which is very strong.

          Does this mean that home prices won’t continue to drop? Absolutely not. There’s still too much unsettling news in the economy to suggest that we’re through the toughest waters yet. But if you find a home you like at a good price, and maintain a long-term outlook on its value, now is a great time to buy.

          Thanks again for your comments,

          CG

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  • I agree, I don’t think home prices will move with the stock market, though there is some correlation. I would be more interested in a graph of SC home prices vs average income in SC.

    What is the longer term average? Where are we now?

    There are a lot people in this area with a lot of money, but there are also a lot of people living in homes that they can’t afford. You need loose lending standards to support these levels or constant appreciation. Standards have tightened, and appreciation isn’t what it was in 2003-2006.

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  • As my first post I need to say thanks Chuck for a fabulous page that is an invaluable resource to prospective SC buyers.

    However, I strongly disagree that graph is “’nuff”.

    Overlay inflation adjusted median house prices (for the county if not for SC), and the real cost (including jumbo rates) of home ownership with average comparable rental rates, and area-wide and/or SC median incomes for prospective buyers.
    I have found:
    Inflation adjusted valuations of homes above historically normal ranges. Comparable rentals are still substantially lower (even counting the current tax advantages) with essentially no down payment, upkeep costs, or other damage risks. Just look around on Craigslist and do the math for your situation.
    The median income of prospective buyers (can barely afford the cost of financing (assuming 20% down) by traditional standards of affordability.

    Toss on most economists expectation of >10% further housing declines, and then you start to get a gauge of whether it’s a buying opportunity or that the 15% markdown from the original overpriced level is still overpriced.

    The SC median is still easily 10% overpriced from ‘normal’. On top of that, most markets over-correct from the center of cost ranges. Looking at Chuck’s data on original asking and final sale price (tough data to find unless you spend a lot of time keeping up with it, thanks again) indicates that the trend of below offer sales is getting stronger not weaker, and the average asking prices are dropping at the same time. That indicates that SC is not at the middle of price correction, and certainly not at the end. Note that this acceleration could be seasonal due to the weak winter market – keep your eyes open this spring.

    If you buy now and don’t look at the housing market again, and fail to assess your return on investment properly, and tell yourself over and over that it’s a great investment then I’m sure it will feel like one. The problem we face today in the market stems, in part, from a bunch of people thinking that their house was an investment when it was really just an overpriced home.

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    • Hi Alan,

      Thanks for the nice words on the site, and for taking the time to write in. I’m glad you’re finding the data on this site useful.

      I’ll be hard-pressed to argue with your points based upon this week’s performance in the San Carlos real estate arena. There were only 2 homes to close escrow so far this week, and they were 16% and 39% below their respective original list prices. One could easily say “nuff said” to that, too!

      Your points are well taken. Clearly there’s much more to this fiasco of a housing market than just where interest rates happen to be on a given week. There a multitude of forces in play, like unemployment, falling salaries, inflation, that you correctly stated that have a direct impact on the relative affordability. There are different but equally powerful forces in play in a hot market too.

      My reference to the “nuff said” comment is solely based on the obvious conclusion one would draw from looking at this graph: that rates are at or below their lowest point in 35+ years, even without adjusting for inflation. It would be foolish of me to project this oversimplification as a solution for today’s market, and I apologize for the confusion on that.

      Thanks again for your excellent points. I hope you will continue to comment on the site.

      Chuck

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  • Nuff said?
    http://patrick.net/housing/crash.html

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    • 2/3,

      Interesting site. The doomsayers are certainly having a field day with this recession. There are two camps here — the first that see value in home ownership, and those that don’t. For those that do see the value (tax shelter, long-term capital appreciation) the combination of depressed prices and low interest rates have created a window of buying opportunity that hasn’t existed in 3 decades. Does that mean that prices won’t continue to drop? Of course not. But those who are doing their homework and negotiating good deals right now will be the ones ahead of the game in 3-5 years.

      The comment about rent being much cheaper than home ownership certainly isn’t true around here. Rents are rising due to increased demand, and when you factor in the mortgage interest deduction, it closes that gap pretty quickly.

      Every investment, whether stocks, bonds or real estate goes through correction cycles. This is no different. You can simply choose to stay on the sidelines, or be involved.

      CG

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