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South Lake Tahoe Real Estate: Just who Wins when the Housing Market Recovers?

March 5th, 2010 categories: Buyers Report, For Buyers, For Sellers, Lake Tahoe Real Estate, South Lake Tahoe, CA, Stateline, NV

Looking can be too much!South Lake Tahoe is just that kind of place… where we might be careful about what we wish for!

In thinking about real estate market growth, just to refresh our memory, what one is really talking about is two things: (1) an increase in demand, which begets (2) an increase in price.

Housing recovery, which means industry growth, is certainly one of the key concepts we're involved with as a country these days. Needless to say, there is opinion aplenty to be found from all angles, and it comes to all of us in overladen bushels, it seems, from just about anywhere.

One of the things we're noticing, oh I we all love human nature, is most of the folks who have opinion about housing recovery are pretty much sure their position is the one that is paramount above all others.

There is no dearth of housing industry experts; self acclaimed mostly, they are everywhere. Yes, Delphi would be crowded with all of the real estate oracles we have these days.

Call it something you can count on!Thankfully, our job here is to report, though we too have an opinion from time to time. One of those that we have now has much to do with the idea of being careful what you wish for… especially if one is on the buyer side of the equation.

The question is simply this, who will benefit most when the housing market comes back around? Again.

South Lake Tahoe, like most places, is very much a buyers market right now. It won't stay that way forever; it never does. This is yet another way of saying that all real estate markets eventually recover. They always do. A buyer's market then becomes a seller's market. The real question is when.

According to some Delphi regulars, lets group them as market optimists, the bulls of the pantheon, it is their fervent belief that recovery has already started. Then there is of course the roar of the delphic bears that we haven't even begun to see the real down market yet.

Our take is the market still has time before we can point to a decided shift in the force, if you will. The two most telltale things we're looking at is the US jobs market (here and here, recently), and interest rates.

Obviously the home buyer who is currently thinking of becoming a resort homeowner in South Lake Tahoe wants to buy while it is still a buyers market, that's just good common sense. The key for that buyer, we think, is to buy anytime before interest rates go up. That could be anytime between right now and when they eventually do.

It's true, an interest rates does it. A fun example to consider :
We've written about this before, but lets review what happens when interest rates rise compared to a further decline in the price of a house. Some bears say that the market will further correct by another 10% -15% decline in house prices. Lets use this as our exercise.

  • A house would sell for $300,000 today.
  • It may or may not sell for $270,000 in 3 months (10% less).
  • It may or may not sell for $255,000 in 6 months (15% less).
  • It is possible to get a 30-yr fixed loan with 20% down and zero points for a buyer with good credit today for 4.75%.
  • This means a buyer of a $300,000 house in South Lake Tahoe today could have a monthly mortgage payment of $1,251. (Calculator we used here, remember to account for 20% down, so the loan amount reflects that.)
  • The monthly payment on this same house would be $1,288 if the interest rate were 5%.
  • If the house sold for 10% less ($270,000), but the interest rate were 6% (which was a very low interest rate the last time the market was up), the monthly mortgage payment would be $1,295.
  • If the interest rate were 6.5%, which was a rather normal interest rate throughout much of the housing ramp up between 2003 and 2005, the monthly mortgage payment would be $1,365.
  • If the house sold for 15% less ($255,000), but the interest rate were 6% (which was a very low interest rate the last time the market was up), the monthly mortgage payment would be $1,223.
  • If the interest rate were 6.5%, which was a rather normal interest rate throughout much of the housing ramp up between 2003 and 2005, the monthly mortgage payment would be $1,289.

 What this example means : (deductions to conclude)

  • If there is a 1 point rise in interest rates, which will eventually come, saving 10%, or $30,000 off of a $300,000 house will cost a buyer $44 more each month over 30 years ($15,840).
  • This example certainly becomes more significant with the inevitable increase in home prices that comes from a sellers market (this is the careful what you wish for part).
  • And it becomes even more significant when interest rates become 6.5% or higher, and we all know there is historic precedence for that.
  • If we were intending on buying in South Lake Tahoe anytime in the near future, we'd be thinking about these things. (Sometimes saving money off the cost of a house costs you more in the long run!)

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This entry was posted on Friday, March 5th, 2010 at 8:17 am and is filed under Buyers Report, For Buyers, For Sellers, Lake Tahoe Real Estate, South Lake Tahoe, CA, Stateline, NV. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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