<<Well costs keep going up. A nice basket of commodities goes into your fourplexes. This next cycle probably won't be a good one for builders margins or for land values though..>>
Once interest rates get above 10% the high end housing market starts to shut down.
Then people have to rent, but it is too expensive to finance new building. In my town, land is so valuable building a new 4,000 sq ft 4 plex, 2 bedrm, one bath would cost $700 to $800,000 and at just 7% would require $1,800-- to $2,000 a month rent for a 10% cap rate of return.
That is insane even up here. At 10%, what $2,500 a month? We are headed in that direction fast. My town is such a microcosm of pure supply and demand it could be used in an economics class as a case study.
We have no ability to expand supply (little affordable buildable land)and very fast rising demand. I tell my investor clients to grab anything they can at these interest rates and prices as the new buildings cost $300,000 to $330,00 for 1,200 sq ft 2 bedrm, two bath and our city makes it hard to build.
Double used houses that size. And you get better land.
The housing future up here is real easy to quantify, except for the interest rates. And if they take a sudden leap we will see a real housing bloodbath across the country and sky high rents here. |
