The cocktail we are seeing in real estate is particular
Real estate is locked in via long term loans at 2% for a big proportion of owners while inflation is pricing out new buyers
On the other hand new buyers need to pay 6% interest.
This prices out the majority of new buyers
Real estate is locked in via long term loans at 2% for a big proportion of owners while inflation is pricing out new buyers
On the other hand new buyers need to pay 6% interest.
This prices out the majority of new buyers
That in itself increases the demand for rental properties which makes the prices for rentals skyrocket.
All the prior buy flow for properties is flooding the rental market which increases inflation.
All the prior buy flow for properties is flooding the rental market which increases inflation.
It makes the shelter component of the CPI appear high.
The weighted shelter takes up 32.77% of CPI!
It will take pain for owners to sell their properties given the current rental market.
Why would you sell if a new mortgage will cost you 6%.
The weighted shelter takes up 32.77% of CPI!
It will take pain for owners to sell their properties given the current rental market.
Why would you sell if a new mortgage will cost you 6%.
A simple calculation shows you what new buyers are facing.
10% down
30y mortgage
6.33% interest rate
Property price: $1,000,000
----------------------
Total of 360 mortgage payments: $2,011,812
You literally have to pay 2x the price of the property
At 2%, its "only" $1,197,567
10% down
30y mortgage
6.33% interest rate
Property price: $1,000,000
----------------------
Total of 360 mortgage payments: $2,011,812
You literally have to pay 2x the price of the property
At 2%, its "only" $1,197,567
Another issue is just how much the CPI lags behind leading indicators.(≈7months)
We started decelerating, but the CPI is likely to reflect it far too late.
Remember this is an enormous market, it takes time to turn.
Policies will be strict and are likely to lead to errors.
We started decelerating, but the CPI is likely to reflect it far too late.
Remember this is an enormous market, it takes time to turn.
Policies will be strict and are likely to lead to errors.
Loading suggestions...