The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to look at where rates are headed when deciding to buy now or wait until next year.
According to a recent article in Kiplinger, 30 year mortgage rates are about to increase:
“Now around 4.1%, rates will edge slowly toward 4.4% by the end of this year. Then they’ll follow the Treasury bond rate’s upward move in early 2015. Thirty-year home loans should end 2015 at around 5.1%, still low by historical standards.”
Here is a graph created by using interest rate projections in Freddie Mac’s August 2014 U.S. Economic & Housing Market Outlook:
How will this impact a mortgage payment?
Research released this month by Zillow reveals:
“We examined how a 1 percentage point rise in mortgage rates would impact monthly payments for the typical home in 35 metro areas, and found that the difference this year versus next year varies dramatically from market to market. In the San Jose/Silicon Valley area, for example, potential buyers should expect to see a monthly payment increase of more than $700 if they waited a year to buy the same home they were considering today. By contrast, in St. Louis, the difference is only $65 per month.” (emphasis added)
Again, we turn to the Zillow research:
“As rates rise, new home buyers will confront higher financing costs and monthly mortgage payments. For many, this will mean tightening their budgets and sacrificing some luxuries they may take for granted today.”
Kevin Kelly, Chairman of the National Association of Home Builders (NAHB), recently explained that:
“With interest rates near historically low levels and strengthening job growth, now continues to be a great opportunity to buy a home.”
We couldn’t agree more. However, one must realize that, with prices and interest rates both projected to increase, waiting could be costly.
There are two organizations that look at the affordability of purchasing and actually measure it over time. The National Association of Home Builders has their Housing Opportunity Index (HOI) and the National Association of Realtors’ has the Housing Affordability Index.
Both indexes are reporting the same thing. The cost of buying a home is beginning to increase leading the affordability indexes to dip.
Both indexes say we passed the bottom of the housing market
According to NAHB’s HOI housing affordability dipped slightly in the second quarter of 2014. NAHB’s Chief Economist David Crowe explains:
“The second quarter HOI reflects the slow but steady march toward the historic levels of price appreciation and interest rates that result in affordability levels we experienced before the mid-2000s boom.”
According to NAR in a recent Economists’ Outlook post, home affordability is down from both one month ago and one year ago in all regions.
Michael Hyman, Research Assistant at NAR said:
“At the national level, housing affordability is down for the month of June due to higher prices and qualifying income levels despite the lowest mortgage rates of the year.”
In a recent article, the Wall Street Journal also revealed that the cost of home ownership is higher than any time in over five years:
“Housing affordability hit its lowest level in nearly six years in June as home prices continued to climb.”
If you were waiting for the bottom of the market, you missed it. Yet, with prices below values of seven years ago in most parts of the country and interest rates near historic lows, it is still a great time to buy a home…but hurry!
Today we are excited to have Morgan Tranquist as our guest blogger. Morgan is the Marketing & Graphics Director for The KCM Crew and provides insight into what the Millennial Generation needs to hear from their agents.
At Keeping Current Matters, we have often broken down the opportunity that exists now for Millennials who are willing and able to purchase a home NOW… Here are a couple other ways to look at the cost of waiting.
Let’s say you’re 30 and your dream house costs $250,000 today, at 4.12% your monthly Mortgage Payment with Interest would be $1,210.90.
But you’re busy, you like your apartment, moving is such a hassle…You decide to wait till the end of next year to buy and all of a sudden, you’re 31, that same house is $270,000, at 5.3%. Your new payment per month is $1,499.32.
The difference in payment is $288.42 PER MONTH!
That’s basically like taking a $10 bill and tossing it out the window EVERY DAY!
Or you could look at it this way:
- That’s your morning coffee everyday on the way to work (average $2) with $11 left for lunch!
- There goes Friday Sushi Night! ($72 x 4)
- Stressed Out? How about 3 deep tissue massages with tip!
- Need a new car? You could get a brand new $20,000 car for $288.00 per month.
Let’s look at that number annually! Over the course of your new mortgage at 5.3%, your annual additional cost would be $3,461.04!
Had your eye on a vacation in the Caribbean? How about a 2-week trip through Europe? Or maybe your new house could really use a deck for entertaining. We could come up with 100’s of ways to spend $3,461, and we’re sure you could too!
Over the course of your 30 year loan, now at age 61, hopefully you are ready to retire soon, you would have spent an additional $103,831, all because when you were 30 you thought moving in 2014 was such a hassle or loved your apartment too much to leave yet.
Or maybe there wasn’t an agent out there who educated you on the true cost of waiting a year. Maybe they thought you wouldn’t be ready, but if they showed you that you could save $103,831, you’d at least listen to what they had to say.
They say hindsight is 20/20, we’d like to think that 30 years from now when you are 60, looking back, you would say to buy now…
Some homeowners consider trying to sell their home on their own, known in the industry as a For Sale by Owner (FSBO). There are several reasons this might not be a good idea for the vast majority of sellers.
Here are five of those reasons:
1. There Are Too Many People to Negotiate With
Here is a list of some of the people with whom you must be prepared to negotiate if you decide to FSBO.
- The buyer who wants the best deal possible
- The buyer’s agent who solely represents the best interest of the buyer
- The buyer’s attorney (in some parts of the country)
- The home inspection companies which work for the buyer and will almost always find some problems with the house
- The appraiser if there is a question of value
- Your bank in the case of a short sale
2. Exposure to Prospective Purchasers
Recent studies have shown that 92% of buyers search online for a home. That is in comparison to only 28% looking at print newspaper ads. Most real estate agents have an extensive internet strategy to promote the sale of your home. Do you?
3. Actual Results also come from the Internet
Where do buyers find the home they actually purchased?
- 43% on the internet
- 9% from a yard sign
- 1% from newspapers
The days of selling your house by just putting up a sign and putting it in the paper are long gone. Having a strong internet strategy is crucial.
4. FSBOing has Become More and More Difficult
The paperwork involved in selling and buying a home has increased dramatically as industry disclosures and regulations have become mandatory. This is one of the reasons that the percentage of people FSBOing has dropped from 19% to 9% over the last 20+ years.
5. You Net More Money when Using an Agent
Many homeowners believe that they will save the real estate commission by selling on their own. Realize that the main reason buyers look at FSBOs is because they also believe they can save the real commission. The seller and buyer can’t both save the same commission.
Studies have shown that the typical house sold by the homeowner sells for $184,000 while the typical house sold by an agent sells for $230,000. This doesn’t mean that an agent can get $46,000 more for your home as studies have shown that people are more likely to FSBO in markets with lower price points. However, it does show that selling on your own might not make sense.
Before you decide to take on the challenges of selling your house on your own, sit with a real estate professional in your marketplace and see what they have to offer.
Whether you are buying or selling a home, it can be quite an adventurous journey. You need an experienced Real Estate Professional to lead you to your ultimate goal. In this world of instant gratification and internet searches, many sellers think that they can For Sale by Owner or FSBO. The 5 Reasons You NEED a Real Estate Professional in your corner haven’t changed, but have rather been strengthened in recent months due to the projections of higher mortgage interest rates & home prices as the market continues to recover.
1. What do you do with all this paperwork?
Each state has different regulations regarding the contracts required for a successful sale, and these regulations are constantly changing. A true Real Estate Professional is an expert in their market and can guide you through the stacks of paperwork necessary to make your dream a reality.
2. Ok, so you found your dream house, now what?
According to the Orlando Regional REALTOR Association, there are over 230 possible actions that need to take place during every successful real estate transaction. Don’t you want someone who has been there before, who knows what these actions are to make sure that you acquire your dream?
3. Are you a good negotiator?
So maybe you’re not convinced that you need an agent to sell your home. However, after looking at the list of parties that you need to be prepared to negotiate with, you’ll realize the value in selecting a Real Estate Professional. From the buyer (who wants the best deal possible), to the home inspection companies, to the appraiser, there are at least 11 different people that you will have to be knowledgeable with and answer to, during the process.
4. What is the home you’re buying/selling really worth?
It is important for your home to be priced correctly from the start to attract the right buyers and shorten the time that it’s on the market. You need someone who is not emotionally connected to your home to give you the truth as to your home’s value. According to the National Association of REALTORS, “the typical FSBO home sold for $184,000 compared to $230,000 among agent-assisted home sales.” Get the most out of your transaction by hiring a professional.
5. Do you know what’s really going on in the market?
There is so much information out there on the news and the internet about home sales, prices, mortgage rates; how do you know what’s going on specifically in your area? Who do you turn to in order to competitively price your home correctly at the beginning of the selling process? How do you know what to offer on your dream home without paying too much, or offending the seller with a low-ball offer?
Dave Ramsey, the financial guru advises:
“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”
Hiring an agent who has their finger on the pulse of the market will make your buying/selling experience an educated one. You need someone who is going to tell you the truth, not just what they think you want to hear.
You wouldn’t hike up Mt. Everest without a Sherpa, or replace the engine in your car without a trusted mechanic. Why would you make one of your most important financial decisions of your life without hiring a Real Estate Professional?
Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He also currently serves on the editorial board of the Journal of Housing Research and Housing Policy Debate. Last year, he released a paper on homeownership – The Dream Lives On: the Future of Homeownership in America. In his paper, Belsky reveals five financial reasons people should consider buying a home.
Here are the five reasons, each followed by an excerpt from the study:
1.) Housing is typically the one leveraged investment available.
“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”
2.) You’re paying for housing whether you own or rent.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”
3.) Owning is usually a form of “forced savings”.
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”
4.) There are substantial tax benefits to owning.
“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”
5.) Owning is a hedge against inflation.
“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”
We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially.