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Real Estate Investment News & Blog

Where to Invest in Real Estate NOW (Inflow, Outflow, Increasing Rates)

Interest rates just reached four-year highs in the first week of February – with the national average for 30-year fixed rates hitting 4.32%.

This was a jump of 33 basis points over the period of just five weeks since the start of 2018.

Parallel to increasing 30-year fixed mortgage rates (that are tied to the direction of 10-year Treasury yields), the Dow Jones index increased and decreased several thousand points in a relatively short period of time.

Yet housing prices are holding steady in spite of the economic turmoil.

Home prices across the nation have been on an upward trend in most large metropolitan regions for several years now. The main stimulus behind these near or all-time record high median home prices has been the years of near or all-time record low 30-year fixed rates.

The Federal Reserve has publicly said over the past 100 years that inflation is their main concern. Why? Inflation weakens the purchasing power of the dollar which, in turn, leads to the dollar buying fewer goods and products as those prices move much higher.

Ironically, the purchasing power of the dollar since the formation of the Federal Reserve in 1913 has fallen from $1 to about 2 cents over the past 100+ years

Should the Fed get too concerned about increasing inflation rates, they will likely continue to increase short-term rates that directly affect consumer loans, specifically credit cards, automobiles, student loans, and especially home mortgages.

Higher interest rates for mortgages make the monthly payments considerably higher. Even with 30-year fixed mortgage rates near 4-year highs today in the low 4% range, they are still incredibly low as compared with past 30-year fixed rates that were in the 7%, 8%, 10%, 12%, and 15% rate ranges.

Property owners and real estate agents should keep in mind that the declining mortgage loan amounts that buyers can qualify for can subsequently cause home prices to fall shortly thereafter.

Let’s take a look below at how higher interest rates directly reduce the amount of a loan amount that a person can qualify for if they’re seeking a monthly mortgage payment under $1,000:

Month & YearInterest RateMonthly PaymentLoan Amount
June 198512.22%$999.05$ 95,550
June 20008.29%$999.16$132,500
October 20173.89%$999.90$212,250
Source: Freddie Mac

The Debt Anchor

Consumer debt reached all-time record high numbers in December 2017 contrasted by personal savings rates reaching near all-time lows. The debt anchor becomes even heavier for consumers as the adjustable rate payments increase right along with higher rates.

The latest reported published consumer debt numbers were as follows:

Student Loan Debt: $1.491 trillion

Credit Card Debt: $1.027 trillion

Automobile Loans: $1.11 trillion

Residential Mortgage Debt (3rd Quarter 2017): $10.538 trillion

Source: Federal Reserve

Outflow from Pricey Cities

With home purchase and leasing prices reaching historical highs (along with other basic expenses), more people today are deciding to relocate from expensive regions to more affordable regions.

As more people work from their home office, it’s becoming easier to “telecommute” from a laptop or smartphone from just about any state.

The very expensive San Francisco region now leads the way as the #1 place in America where the number of people leaving far exceeds the number of incoming residents.

In 2017, the average rental price for just a one-bedroom unit in the city of San Francisco was a whopping $3,333 per month, and the median home sales price was $1,420,000.

Below were the top 10 most expensive places to live in 2017 (as it relates to a
Cost of Living Index) compiled by the Council for Community and Economic Research, which measures housing, food costs, utilities, health care, and transportation:

1. Manhattan, New York

Median Household Income: $72,871
Median Home Value: $848,000

2. Sunnyvale, California

Median Household Income: $105,401
Median Home Value: $790,300

3. Honolulu, Hawaii

Median Household Income: $74,460
Median Home Value: $580,200

4. San Francisco (county region)

Median Household Income: $81,294
Median Home Value: $799,600

5. Brooklyn, New York

Median Household Income: $48,201
Median Home Value: $570,200

6. Washington D.C.

Median Household Income: $70,848
Median Home Value: $475,800

7. Oakland, California

Median Household Income: $54,618
Median Home Value: $458,500

8. Boston, Massachusetts

Median Household Income: $55,777
Median Home Value: $393,600

9. Stamford, Connecticut

Median Household Income: $79,359
Median Home Value: $501,200

10. Seattle, Washington

Median Household Income: $70,594
Median Home Value: $452,800

The Top 10 Inflow Housing Regions

Surprisingly, San Diego was listed as #1 on this list that was compiled by Redfin (www.redfin.com – a data analysis and real estate company), and another California city was listed as #2.

The main place people are moving from within the state of California is Los Angeles and from outside of the state, Seattle, Washington.
san diego
On a comparative basis, San Diego is much more affordable than Los Angeles and Seattle while offering the same close access to the Pacific Ocean and a much better year-round climate.

Sacramento (#2) attracts people fleeing from the more expensive San Francisco and Seattle regions.

RankMetropolitan Region
1San Diego, CA
2Sacramento, CA
3Las Vegas, NV
4Phoenix, AZ
5Atlanta, GA
6Boston, MA
7Dallas, TX
8Nashville, TN
9Tampa, FL
10Miami, FL

As people leave one region, obviously they need to find a place to live in another city, county, or state. Savvy real estate investors will keep a close eye on those most popular regions that are attracting new residents.

When the demand for available housing units far exceeds the supply, prices begin to rise and investors can prosper.

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About the Author...

Check out Rick's new book The Credit Crisis: 10 Years and Counting (August 2017 publishing date) as well as The Credit Crisis Deals: Finding America's Best Real Estate Bargains.

Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date. He also writes college textbooks and real estate courses in several states for some of the largest educational firms nationwide.

Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.

You can visit Rick Tobin at RealLoans.com.

Comments

  1. How about Columbus, Ohio VS Austin, Texas. Affordable or not? What about taxes? Location is everything and
    taxes can kill a location! I would think Texas would be a safe real estate empire. Austin, Dallas, Fort Worth, any or all suburbs of these three should be ok, right? Austin is the capitol so would it be better?

  2. Rick Tobin says:

    I actually like many regions in Texas, including Austin, Dallas, and San Antonio. In fact, I used to buy and sell properties near Austin many years ago. Yes, Texas has many tax benefits as well.

    I have read some positive reviews about Columbus, Ohio (home of Ohio State) over the years. Interestingly, Ohio State and the University of Texas in Austin are still the two largest universities in the nation, I believe. Many times, it can be wise to purchase rental properties near large college campuses.

  3. Helena says:

    Thank you Mr. Tobin I am going to be quoting you on this. You’re great!

  4. Oliva Rosa says:

    Great idea and awesome thinking. I like the post very much. https://www.fiverr.com/probookdesigns

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