Tuesday, May 29, 2012

Inflation in Our Future: How Inflation Might Effect Your Housing Investment Decisions

How are the latest economic developments going to affect mortgage rates Los Angeles?
Most pundits expect inflation to increase rapidly over the next 24 months.  The massive pumping of the money supply and printing of money by the Fed to keep up with the US deficit is expected to eventually result in too many greenbacks chasing too few goods and services.  This will be especially true as more folks get jobs and pent up demand results in draw downs of inventory. 

We have seen it in the past.  Eventually this will effect both expectations of rising prices for real estate and affordability as incomes rise due to inflation.  There will certainly be an offset due to increased mortgage interest rates, but the overall result is very likely to be increased home and apartment prices.

Monday, May 28, 2012

Mortgage Trends: Historic Low Mortgage Rates Can't Last Forever

In uncertain times, what can we predict about mortgage rates Los Angeles?
Both government rules and free markets tend to overreact to crisis, and nowhere has this been more true than the mortgage market meltdown of 2008.  From the freewheeling, no-proof-of-credit-worthiness times we thought we enjoyed in the first decade of this century, we have now cycled into a climate where the mortgage market is tighter than anyone can remember.  It is very unlikely that this tightness will persist.  As demand increases, there will be those lenders who will want to take advantage of better times.

Interest rates are at lows that no one would have predicted, but only because of low demand, Fed intervention, and a flight to safety in US Bonds.  The Fed is already discussing the timing of when this intervention will end, and any uptick in demand is likely to result in upward pressure on rates.  There is no precedent or imaginable scenario for rates to drop significantly below what they are today.  Could that happen? Sure, but the odds are way more likely that rates will go up significantly than down at all.

Sunday, May 27, 2012

Housing Prices: No Where to Go but Up...Unless They Go Down

Are you wondering what will happen with mortgage rates Los Angeles? Housing prices and rents are subject to the same laws of supply and demand in finance as any other product.  The roots of the demand are demographic ebbs and flows which are modified by the self-descriptive statistic, “household formation.”  If you have more households forming due to increases in population in a region plus a diminishing desire of people to share living space, you see increase in demand for houses.  Currently, high unemployment and uncertain incomes push demand down for new homes, so currently we are experiencing low household formation.

As employment increases, young adults will tend to move out of their parents home, those who are sharing living spaces will look to live alone or with fewer individuals sharing.  This will put increased demand on residential prices.  Therefore, in our current environment, household formation is much more likely to increase than to decrease.

The supply side is affected by vacancies – as measured by the number of months of supply of homes on the market as well as how many apartment units and homes are being constructed.  Right now apartment vacancies are around 5%.  Historically this is as low as has been seen and it puts upward pressure on rents.  New apartment units are not yet being constructed in numbers large enough to meet the demand.

New home construction is at historic lows, but the high number of homes for sale is starting to drop from the record highs to more normal levels.  In other words, the supply of both apartments and homes is drying up, and there is no way to increase that supply quickly if household formations increase as expected.  This will put upward pressure on rental rates and home prices.

Costs of materials, labor, and regulation are all going higher for construction of new homes and apartments.  This means that the possibilities of the price of both can't fall much below current levels, as the replacement value would be more than the current pricing.

As rents go up the calculation for purchasing versus renting changes, and more renters become buyers.  Once again this puts upward pressure on housing costs, although it may temporarily dampen rents.