How Much Higher Can Redondo Beach Home Prices Go?



So, how much higher can prices go? Well by my estimation a lot. A whole lot. Here's why.

Interest rates.

This week I had buyers getting quotes on 30 year fixed rate mortgages in the mid 3% range. Back when prices were at their previous highs we were in the 6's. Let's do a quick analysis of how much someone can buy at each price point.

For the sake of the discussion, let's say in 2007 you could have purchased a new 3 on a lot townhouse for $750,000. Better yet, let's take a real example: 2620 Grant Unit A sold for $750K and closed escrow in Sept of 2007. For the sake of discussion, let's also assume that the buyer put nothing, nada, no money down loan. At a 6% interest rate the payment (for the sake of this exercise I am not going to calculate property taxes to keep it simple) the payment would have been $4,497. Of course that assumes the buyer didn't opt for a neg am loan or some other bizarro product they had floating around back then.

Today at 4% interest rate, a loan of $950,000 will run you $4,535 per month. Of course you will not be getting a loan with no money down. But you can get a no PMI loan with 10% down on loan amounts up to $1M from some lenders.

So for a purchase price of $1,050,000 with 10% down and a loan amount of $945,000 you will be paying $4,511. 

Am I saying that a new construction front unit townhouse on Grant is now worth $1,050,000. Sure. Take a look at 2209 Grant Unit A. Contemporary new construction listed at $1,059,000. Will it sell for that much? Hard to say but it will go for over $1M for sure. 

So my conclusion is that we have at least $250K more room to run until we hit substantial resistance assuming rates are at 4% and lower. And at that point we may see more substitution of mortgage products ie ARMS instead of fixed rate. And don't expect prices to decline when we hit market top. More likely they plateau or move within a trading range as the pool of buyers finds new homes.

Thanks for reading.