How high will mortgage rates climb in the next 36 months?

This is why I fail to understand Mawsome Sauce's point on why investors would be selling during housing downturn. Why would you sell your rental after a 10% drop, especially if you locked in a low rate, when you could have done so at peak? Higher rates would make you just feel better about your mortgage.
Because you can get better returns? A lot of investors are break even with rents and just use their leverage as an appreciation play. If you see RE staying flattish for 5 years but think TSLA is going to the moon, you sell.
 
Because you can get better returns? A lot of investors are break even with rents and just use their leverage as an appreciation play. If you see RE staying flattish for 5 years but think TSLA is going to the moon, you sell.
That's a very bad strategy. You either buy a house to flip for immediate profit or get positive cash flow from rents. Buying a house with no cash flow from rent waiting for appreciation is just sitting on dead money. Then it would have been better to use the down payment to invest in stocks in the first place.
 
Because you can get better returns? A lot of investors are break even with rents and just use their leverage as an appreciation play. If you see RE staying flattish for 5 years but think TSLA is going to the moon, you sell.
Such an investing genius on par with Warren Buffet. If you know any stock investment that gives 5%-10% return annually guaranteed, sign me up. 😎
 
That's a very bad strategy. You either buy a house to flip for immediate profit or get positive cash flow from rents. Buying a house with no cash flow from rent waiting for appreciation is just sitting on dead money. Then it would have been better to use the down payment to invest in stocks in the first place.
Let me know what broker can get you 5x leverage with no recourse
 
Let me know what broker can get you 5x leverage with no recourse
I don't understand where your 5x leverage is coming from. Are you saying that housing appreciation is guaranteed? Are you saying that 2008 never happened? You know what happens when the housing market crashes? You can't do shit. You can't sell the house because either (a) lease contract or (b) negative equity. Dead money. No cash flow. At least, with the stock market, you can get out.
 
This is why I fail to understand Mawsome Sauce's point on why investors would be selling during housing downturn. Why would you sell your rental after a 10% drop, especially if you locked in a low rate, when you could have done so at peak? Higher rates would make you just feel better about your mortgage.
If the government doesn’t raise taxes on the investors, then the fed has to raise rates to indirectly tax them. You would sell your rental if rates went to 20% right? You may think I sound crazy but I fully support a mortgage rate of 20% if it obliterates the housing market and forced a reset. It’s the price needed if governments won’t raise taxes on non local investors. Either the
Government does it or the fed takes the blunt hammer and whacks everything.
 
If the government doesn’t raise taxes on the investors, then the fed has to raise rates to indirectly tax them. You would sell your rental if rates went to 20% right? You may think I sound crazy but I fully support a mortgage rate of 20% if it obliterates the housing market and forced a reset. It’s the price needed if governments won’t raise taxes on non local investors. Either the
Government does it or the fed takes the blunt hammer and whacks everything.
Explain to me how a 20% mortgage rate affects my rental if I locked it in at 3%? It has NO EFFECT on my rental whatsoever. And as you said, if a 20% mortgage rate obliterated the housing market, why the heck would I want to sell my rental at such a low price? You make no sense at all.

You keep talking about mortgage rates, but you don't seem to understand that the current mortgage rates have NO EFFECT on current owners. They only affect potential buyers.
 
I don't understand where your 5x leverage is coming from. Are you saying that housing appreciation is guaranteed? Are you saying that 2008 never happened? You know what happens when the housing market crashes? You can't do shit. You can't sell the house because either (a) lease contract or (b) negative equity. Dead money. No cash flow. At least, with the stock market, you can get out.
In a low interest rate environment yeah, housing returns are pretty close to guaranteed.
 
In a low interest rate environment yeah, housing returns are pretty close to guaranteed.
In low interest rate environment, stocks do the same. And like I said, as soon as the mortgage rates rise, housing market will drop, but you can't get out. So, either way, investing in the stock market is superior to investing in the housing market unless you're in the flipping business.
 
Explain to me how a 20% mortgage rate affects my rental if I locked it in at 3%? It has NO EFFECT on my rental whatsoever. And as you said, if a 20% mortgage rate obliterated the housing market, why the heck would I want to sell my rental at such a low price? You make no sense at all.

You keep talking about mortgage rates, but you don't seem to understand that the current mortgage rates have NO EFFECT on current owners. They only affect potential buyers.
The 20% or even 7% rate drives down rents as they are a function of prior sales/valuations. As SGIP pointed out a statewide rent control law would also be easy for the Dem supermajority to pass, and given the majority of CA residents are renters...

The eviction moratorium has decimated many income investors up here - this woman went on a hunger strike which appears to have been a succesful tactic

https://www.cbsnews.com/sanfrancisc...county-lets-covid-eviction-moratorium-expire/
 
When buying an investment property one has to think deeply where it lies.
Where would you buy LA county or Orange county?
Definitely OC over LA as the landlord rights are stronger here.
Republicans have an easier time kicking out families then their Democrat colleagues.

Buying an investment residential property in blue SF is just asking for it.
The investor should pivot to business properties. No one cares about evicting a failing business.
 
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Explain to me how a 20% mortgage rate affects my rental if I locked it in at 3%? It has NO EFFECT on my rental whatsoever. And as you said, if a 20% mortgage rate obliterated the housing market, why the heck would I want to sell my rental at such a low price? You make no sense at all.

You keep talking about mortgage rates, but you don't seem to understand that the current mortgage rates have NO EFFECT on current owners. They only affect potential buyers.
your mindset is similar to someone buying a dividend paying stock and saying higher interest rates have no effect on your dividend. Assuming the dividend/rent stays constant due to weaker conditions from higher rates, what happens if stock/home prices fall by 50%? The income generation now pales to the principal loss. Investors think just like how I’m thinking and discount their investments to market rates. Higher interest rates always will fix asset prices, be it housing or anything else. Higher rates will force investors to sell their homes and push prices down.

Your thinking reminds me of many people who hold bonds/stocks that are falling and justify it with the income from coupon/dividends. Eventually the conditions that caused the prices to fall force company to renegotiate/adjust their coupon/dividends. The investors are left with less income and a principal loss.
 
your mindset is similar to someone buying a dividend paying stock and saying higher interest rates have no effect on your dividend. Assuming the dividend/rent stays constant due to weaker conditions from higher rates, what happens if stock/home prices fall by 50%? The income generation now pales to the principal loss. Investors think just like how I’m thinking and discount their investments to market rates. Higher interest rates always will fix asset prices, be it housing or anything else. Higher rates will force investors to sell their homes and push prices down.

Your thinking reminds me of many people who hold bonds/stocks that are falling and justify it with the income from coupon/dividends. Eventually the conditions that caused the prices to fall force company to renegotiate/adjust their coupon/dividends. The investors are left with less income and a principal loss.
You make no sense whatsoever. Your comparison makes no sense whatsoever. Holding a rental has absolutely NOTHING to do with holding a dividend stock. Two completely different things. You don't know what you're talking about.

So, tell me, how does the investor sell the home if it falls 50%? Do you realize that if your rental falls 50%, you CAN'T sell it because you have negative equity? Let say you bought a home for $500k and put down 20%, so you borrowed $400k. If the home falls 50%, that leaves the value at $250k. Now, if you sell the home, you will need to dish out $150k just to sell the home. WHY would you do that?

On the other hand, if you hold on to the home, your so-called principal loss in ON PAPER. It's not an ACTUAL loss. In the meantime, you keep collecting rent until the house price recovers, and have POSITIVE cash flow. NO CHANGE in income.

Again, higher interest does absolutely NOTHING to CURRENT owners. Higher interest doesn't change the mortgage payment of the current owners. Why would they need to sell the home? Explain that.
 
You make no sense whatsoever. Your comparison makes no sense whatsoever. Holding a rental has absolutely NOTHING to do with holding a dividend stock. Two completely different things. You don't know what you're talking about.

So, tell me, how does the investor sell the home if it falls 50%? Do you realize that if your rental falls 50%, you CAN'T sell it because you have negative equity? Let say you bought a home for $500k and put down 20%, so you borrowed $400k. If the home falls 50%, that leaves the value at $250k. Now, if you sell the home, you will need to dish out $150k just to sell the home. WHY would you do that?

On the other hand, if you hold on to the home, your so-called principal loss in ON PAPER. It's not an ACTUAL loss. In the meantime, you keep collecting rent until the house price recovers, and have POSITIVE cash flow. NO CHANGE in income.

Again, higher interest does absolutely NOTHING to CURRENT owners. Higher interest doesn't change the mortgage payment of the current owners. Why would they need to sell the home? Explain that.
You sell because you are forced to. The economic conditions will force you to if you also start losing rent and have to cover the cost of maintaining the rental. I’m not sure if you have gotten too used to the low rate conditions the last 15 years. What I’m describing is how things used to be. People sold properties for these reasons all the time. Your scenario would simply lead to an eventual foreclosure the moment financial hardship hits.

I can’t wait to go back to double digit mortgage rates. I’m not trying to argue with you. I’m saying this stuff because I believe it will probably happen soon. I don’t see the world where real estate always works a viable future
 
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You sell because you are forced to. The economic conditions will force you to if you also start losing rent and have to cover the cost of maintaining the rental. I’m not sure if you have gotten too used to the low rate conditions the last 15 years. What I’m describing is how things used to be. People sold properties for these reasons all the time. Your scenario would simply lead to an eventual foreclosure the moment financial hardship hits.

I can’t wait to go back to double digit mortgage rates. I’m not trying to argue with you. I’m saying this stuff because I believe it will probably happen soon. I don’t see the world where real estate always works a viable future
Again, tell me, why are you FORCED to sell if you still have positive cash flow? Do you mean losing rent as in losing tenants and can't find new tenants? That would be the ONLY condition. Otherwise, why would you be losing rent?

And we're not going back to double digit mortgage rates. The economy wouldn't allow it. The last time we had 10% mortgage rates were back in 1990.
 
Again, tell me, why are you FORCED to sell if you still have positive cash flow? Do you mean losing rent as in losing tenants and can't find new tenants? That would be the ONLY condition. Otherwise, why would you be losing rent?

And we're not going back to double digit mortgage rates. The economy wouldn't allow it. The last time we had 10% mortgage rates were back in 1990.
The market rate of rent will fall below the upkeep cost. So your net cash flow will be negative. Yes, I’m envisioning very tough times ahead, including double digit rates. The alternative is a very deep recession on an election year eve, which is unlikely but would save us the high rate experience. That won’t happen.

I have gone from buying a house the moment I have an opportunity to now probably bargain hunting. I’m hoping to get a place in 1-2 years and I think it’s doable if my prediction happens
 
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The market rate of rent will fall below the upkeep cost. So your net cash flow will be negative. Yes, I’m envisioning very tough times ahead, including double digit rates. The alternative is a very deep recession on an election year eve, which is unlikely but would save us the high rate experience. That won’t happen.

I have gone from buying a house the moment I have an opportunity to now probably bargain hunting. I’m hoping to get a place in 1-2 years and I think it’s doable if my prediction happens

The only economic force that will force investors to sell is a significant decrease in rent which will not happen in Orange County as it didn't happen during the Great Recession. I think rents went down less than 10% in Orange County from 2006/2007 to 2009/2010 (even less of a decline in Irvine) if I remember right. Significant rent declines can only happen with a much higher unemployment rate and even with the rate hikes the unemployment rate is basically the same as it was before they started raising rates. I believe that the higher mortgage rates go the less inventory of homes you see being listed on the market.
 
@Mawesome unfortunately I've said it before, but if a recession happens, mortgage forbearance round 2! No president wants to see families under their administration in the streets. Good luck timing the market!
 
@Mawesome unfortunately I've said it before, but if a recession happens, mortgage forbearance round 2! No president wants to see families under their administration in the streets. Good luck timing the market!
Uh - that will come with an eviction moratorium too, which means cash flow goes to zero, and I could see that without any help for mortgage forebearance. What dumb tenant would pay their rent? Better get ready for the hunger strikes like the example I posted from the East Bay.

The Fed will do anything it can to deflate rents which are the biggest piece of PCE.
 
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