Thursday, October 22, 2009

More Thoughts on the Bottom

The housing crash affected markets across the country with cities that had been resistant, like San Francisco, falling spectacularly in the past year by a whopping 32% or more. Most analysts present a pessimistic picture, but seem to believe housing prices have bottomed out in many parts of the country. Prices are at the level seen around 2003, but would need to fall to the levels of 2000, to go back to pre-bubble prices. The silver lining is of course that it is a buyer's market, and there are great deals out there. If the economy rebounds soon, with inflation ignited by the stimulus package, then home prices will rise again. However, albeit with the current very low mortgage rates, home prices compared to average earnings are still higher than they were at the height of the 1989 property bubble. When that bubble burst, it took 8 years for market recovery. This current crash is larger, and the recovery could be respectively longer.
What kind of loan would a savvy investor in our area need in order for their rental to cashflow? The chart below shows the current average rental rates in King and Snohomish counties, as recorded by The Department of Housing and Urban Development's 2009 Fair Market Rent Documentation :

The chart below shows the loan that could be supported by the average rents above:

Payment* Sales Price Loan Amount Cash At Closing*
$1,700.00 $460,000.00 $345,000.00 $122,907.36
$1,500.00 $407,000.00 $305,250.00 $108,971.68
$1,300.00 $355,000.00 $266,250.00 $95,298.93
$1,100.00 $300,000.00 $225,000.00 $80,837.36
$ 900.00 $245,000.00 $183,750.00 $66,375.80

Most investors will be looking for returns that do not require such a large cash outlay upfront. In that case, housing prices still have a ways to fall!

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