Real Estate fundamentals



What Does "Real Estate Fundamentals" Mean?


   In real estate, price reflects supply & demand conditions. Thus, future property prices reflect future supply & demand conditions. There is one significant difference between valuing real estate and valuing stocks---affordability. Affordability is not an issue with stocks. Most stock purchases are cash transactions. Conversely, a real estate transaction is usually a leveraged purchase involving financing. The buyer’s debt service and affordability of the property come into play when valuing property. So the equivalent P/E ratio for property would be price growth/household income growth or mortgage debt service/household income. The price growth/household income growth ratio is readily observable in most markets; it is simple, but it is misleading. Nonetheless, it is good to recognize when home prices in a specific market are getting out of line or becoming unaffordable. So, what is the fundamental picture of the South Bay home prices telling us?
   
    The price of a three bedrooms, two bathrooms home in South San Jose area is priced around $300,000.00. The house is in the census track # 5032082009, the median income for this track is $85,388 or monthly income of $7,115. The income vs. payment for this house are as follows:
 

Purchase Price

$300,000.00

Down Payment

4%

Loan Amount

$289,500.00

Years Payment

30

Interest Rate

4.7500%

Payment

$1,510.17

Interest Payment

$1,145.94

Property Tax

$312.50

Insurance

$50.00

HOA Due

$0.00

PMI

$301.00

Total Payment

$2,173.67


   The housing to income ratio is 30.6%. Payment: $2,174 divided to Income $7,115 equal 30.6%. The area residents should have no problem qualify for the purchase of this home with an FHA's mortgage with only 3.55 down.
 
   The fundamental picture for the South San Jose area is as the most advantages for buyers. Thanks to the lower home prices coupled with near record low interest rates.
 
   If you would like to know the fundamental picture in the area that you are most concern with, please email info@svreo.com or call (408) 520-7838 to speak with any of our agents.