Time for the Nutty?
It’s December Already, the time when real estate in SF may be a bit nutty
It’s the time of year when people are in the shopping mood, when folks feel the days running out, when the thought of the tax year closing suddenly compels some to act. Whatever the reason, December can be a frenzied time of year with people doing — well — nutty things like buying exuberantly or faster than they would otherwise. And we’re starting to see some more normal properties come onto the market. This is why it’s important to be working with yours truly who’s been watching and observing the market for quite some time now to give you the proper context and perspective to make sure you’re not the nut.
As I noted last week, it is the weird part of the year that draws out the weirdo properties. There are still some weird birds out there. Examples include: a house/lot that is located behind another house with a 7 foot x 50 foot access path to a house that needs to TLC, which would be worthwhile because of phenomenal views and complicated tenants; the incomplete post-fire Dogpatch house that is being sold with lumber, which is good as the house is only framed on the inside with no systems being installed (the lighting inside was done ala extension cord); to the lots in Bernal Heights that have no road access, utilities and a 20%+ steep grade on the market that, quite naturally have title issues — did I mention it’s unclear if you can even build on them?! Nuts.
So, most observers take this to mean that there is no sign of a bubble having formed or one forming in the near future. Why not?
(1) San Francisco remains in high demand as evidenced by a rehashing of the anti-gentrification sentiments of the late 1990s as reported in the New York Times last week (Backlash by the Bay: Tech Riches Alter a City”) and, for better or worse, as the New Republic summarizes:
Only this time it’s supported by new construction and a grounded jobs market.
(2) A bubble is nearly impossible to imagine with interest rates remaining as low as they are. Interest rates are remaining nice and stable and no one expects the Fed to alter its plans at least until the end of February 2014. The mere rumors of an easing of the Fed’s policy of buying T-bills in May this year caused a 1/2 point rise in mortgage rates that we’re only now finally cycling out of now. As I wrote last week, lenders are (still) looking to lend and to lend now. Lenders from Citibank to First Republic to Wells are all looking to lend and are looking voraciously. From Tony Alencar at Citibank, here are the most current rates:
- JUMBO 30-year fixed 3.875% 0 points (Vanguard preferred rate with Citibank) up to $2M, with 20% down
- 5/1/ ARM up to $2M, with 20% down, 0 pts, rate = 2.625%
- 7/1 ARM up to $2M, with 20% down, 0 pts, rate = 3%
- 10/1 ARM up to $2M, with 20% down, 0 pts, rate = 3.375%
(3) Applying What You’ve Just Read:
In working with a set of new buyers yesterday, they asked me what a monthly payment would look like if they bought now or waited a year from now when rates are predicted to be 5.3% (when rates get to that point again is moot as the main point is that they will at one point). Here’s what we calculated:
Assuming you had $150,000 to put down now on a purchase using a conventional 30-year fixed loan that would be 20% of a $750,000 purchase…
- Purchase in Q1, 2014, Interest rate @ 4.0% your mortgage and property tax obligation would be:$3,563.74/month
- Purchase in Q4, 2014, Interest rate @ 5.3% your mortgage and property tax obligation would be:$4,031.08/month
Net effect: You lose $100,000 worth of buying power with a rate change of about 1% (And don’t forget you can deduct mortgage interest)