Thoughts on this Realtor Magazine Article
by Josh Ezell
The AZ Real Estate Market is HOT!! Especially the Phoenix Area where we have not even 2 months supply of homes for sale, great average sales prices, and lots of qualified buyers just looking for the right home. For many sellers, this also poses a tough question," How do you time the market?" Easy answer: You Cant. It is impossible to time the market BUT think of this. You don't want to sell at the peak. Where will you go without also paying peak prices? You want to sell with room to still improve (at a better appreciation base line at that). With rising interest rates, the hot market and supply, NOW May be the best time ever. Let's dive deeper into this.
What impact does the price you pay for the home have compared to the loan you get for said home? HUGE IMPACT. The price difference between paying $350,000 and $355,000 for a home is easy to gauge, $5000. Is it worth paying $5000 more "than list price" right now? In a rising market, of 4% average appreciation per year, that home is going to rise in value by $14,200. By paying $5000 you are bringing a net profit of $9,200 by acting today. So is it worth paying the slightly higher price? Absolutely. You are actually making money and our market was at around 7% last year. So far this year it is looking even better.
Now lets look at the loan you get. Interest rates are on the rise, we hear this, but what does it mean? Let's look at an example of the difference in an interest rate of 4.5% and 5% on a $355,000 home. The monthly payment at 4.5% is $1798.73, rounded to $1799. At 5% the monthly payment is $1905.72, rounded to $1906. That is $107 more per month for the same home at the same purchase price. Let's look even further since the average mortgage is 30 years. The total cost of the home at 4.5% at the end of 30 years would be $647,642. At 5%, paying it off after 30 years would cost $686,059. That's a $38,417 difference! Does .5% make a difference, YES!
The monthly payment also impacts how much home you can afford. The higher the interest rate, the higher your monthly payment for the same home. By reverse engineering the payment to purchase price, lets look at how much home you can purchase using the same $1800 payment. At 5% that $1800 per month will now only allow you to purchase a $335,000 home. $20,000 less home, for the same monthly payment!
The flip side of this is you are able to purchase a little "more home" for the same monthly payment if you ACT NOW. Buy jumping early you can buy the home with the upgrades you really like, for the "same monthly payment". Meaning you will love the home that much more AND it will bring you that much more actually dollar amount in appreciation each year with the same percent.
Lastly, lets blend them together and look at a overall impact: By acting now, AND paying $5000 more than "planned" the appreciation will raise the value of your home by $14,200 and NET you $9200 (approx). Next, will you save over $100 per month, $1200 per year, and $38,000+ in the long run. You purchased a $355,000 home at the same monthly payment as a $335,000 home at 5%, making your money work harder, go farther, and earn you more. $20,000 (discount or More Home) + $1200 monthly payment savings + $9200 Appreciation = $30,400 True Benefit (excluding tax benefits, cash flow for rental, etc.)
Compound the market, savings, interest, appreciation, happiness, tax benefits, and it all adds up... NOW IS THE TIME! Call me today, I would be very happy to discuss these topics, further. Enjoy the Article Below!!
Designated Broker, Owner
Breakthrough Real Estate &
Property Management, LLC
Higher Rates Could Raise Housing Costs 15%
If mortgage rate forecasts pan out, home buyers might see their mortgage payments grow by 15 percent this year, according to a new analysis by CoreLogic, a real estate data firm.
CoreLogic economists predict that mortgage rates will increase by about 0.85 percentage points between November 2017 and November 2018. The median sales price of a home is projected to increase 2.6 percent in real terms over that same period.
Based on that, CoreLogic researchers predict that the inflation-adjusted typical mortgage payment will increase from $804 in November 2017 to $910 by November 2018, a 13.3 percent year-over-year gain. In nominal terms, CoreLogic researchers say the typical mortgage payment’s year-over-year increase would be 15.5 percent.
As such, home buyers could see a larger portion of their incomes devoted to mortgage payments.
Still, adjusted for inflation, the average mortgage payment puts homebuyers’ current costs at historical ranges, CoreLogic researchers note.
“While the inflation-adjusted typical mortgage payment has trended higher in recent years, in November 2017 it remained 36.4 percent below the all-time peak of $1,263 in June 2006,” CoreLogic reports at its Insights blog. “That’s because the average mortgage rate back in June 2006 was about 6.7 percent, compared with an average rate of 3.9 percent in November 2017, and the inflation-adjusted median sale price in June 2006 was $245,259 (or $199,900 in 2006 dollars) compared with a November 2017 median of $212,460.”
Source: “Forecast Suggests Homeowners’ ‘Typical Mortgage Payment’ Could Rise Over 15 Percent this Year,” CoreLogic Insights Blog (Feb. 15, 2018)