One major result of the 2008 crash that has remained consistent has been low interest rates. The crash was a “perfect storm” for buyer purchase power, especially for those buyers that purchased soon after the market hit bottom (2011-2013). Not only were many of these people buying property that was 50%+ less than it was in the boom, they were also making payments that were substantially lower, since interest rates were 2%+ lower than typical rates had been for decades.
In the Coachella Valley, we will always have a sizable percentage of properties sold as secondary or rental investment. When prices dropped considerably after the crash, cash buyers flooded the markets, but there were still many buyers financing due to the lower rates. With quality, well-priced inventory now shrinking in some of the desert cities, let’s think about what some of the causes may be, and reflect on why sellers who purchased during an opportunistic time may not be trying to get a return on their investment, especially since so many are not primary residences.
Let’s say a buyer purchased a home in Indian Wells for $750,000 in 2012. This buyer put $300K down to keep the loan conforming, and got a loan amount of $450,000. Their payment towards principal and interest is $2280 @ 4.5%. A rate more typical before the crash was 6.25%, which would have resulted in a $2771 monthly payment. This buyer got a good price and a payment that was $500 less than pre-crash figures.
In 2018, this same buyer’s home is now valued at $1,100,000. They have gained $350,000 in equity, and if they were to buy this same home currently they would have to put $750,000 down to get a loan equal to what they got back in 2012. So the buyer is hearing there is low inventory and that his value has appreciated tremendously, but the buyer is wondering what’s the point in selling. The buyer enjoys having a property in the desert, knows that the window of opportunity that was capitalized on will probably never come again, figures that since $350,000 in equity has been gained there is plenty of margin to ride ebbs and flows of the market, and appreciates having a payment that is so low for a million-dollar property. This type of buyer wasn’t looking to “flip” the home; this is a buyer that now views the Coachella Valley as a windfall for his investment. For him it is that much sweeter to continue to enjoy the lifestyle because it would cost too much to try and duplicate it elsewhere.
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