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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