SHAWNEE, KS Homes for Sale have seen steady price improvement month to month as well as year to year as inventory levels remain at all-time lows.
Cost versus Price
Price is really only important to a seller, and that’s short‐term price. What are prices going to be the next six months; that’s what a seller needs to know. What a buyer needs to know are: "What are my long‐term costs of that house?"
And there’s a big difference between short‐term price and long‐term cost. Now, I know price goes into the cost equation, of course it does, but so does interest rate. As a buyer, you really need to understand the difference in costs of the house based on price and interest rate.
Now, when we talk about interest rates, we can see that they’re still falling. They’ve been falling for two years now. That’s what has made housing so affordable for so many, but things might be changing, ladies and gentlemen. As a matter of fact, at the last mortgage bankers’ conference held last month, and this is a report that came out of that: "After reaching record lows in 2012, mortgage rates are expected to creep up slowly in the year ahead," the Mortgage Bankers Association had predicted. Rates on the 30‐year fixed rate mortgage are expected to average 3.8 by the end of this year, rising to 3.9 by the first quarter of next year and to 4.4 by the fourth quarter of 2013.
So what we’re seeing, not gigantic jumps up in the interest rate, but a slow build in the interest rate. You need to understand what that means to your pocketbook. Because if the interest rates all of a sudden spiked up, everyone would be panic‐stricken and jumping off the fence and say "I’ve got to buy." But if they’re creeping up, they could just get higher and higher without people necessarily noticing.
So I put together this table for you, and I started with a $400,000 house. If you have a $200,000 house, cut those numbers in half. But I wanted to show you, even in a depreciating market you should not be just interested in short‐term price, you should be worried about long‐term cost.
So in this table what you can see is even if prices decline and interest rates go up, the monthly mortgage payment, the long‐term cost of that house, continues to rise. This is a table every single homebuyer should pay attention to. I don’t care if it’s you’re a first time homebuyer, or a move‐up or move‐down homebuyer. You should see this, because it really shows you the impact of an increasing interest rate. And what are we basing the increase on? What the Mortgage Bankers Association just predicted; that’s important. Now, this again is showing in a depreciating market.
But ladies and gentlemen, there are three reports out right now. The Home Price Expectation Survey, says that this year coming up, in the next year, 2013, prices will go up 2.44 percent. The National Association of Business Economists said that prices in 2013 are going to rise 2.8 percent. And the Wall Street Journal Economic Survey, the economists they surveyed, say that prices in 2013 are going to rise 3.25 percent.
So if any of you are waiting for the bottom of the market, it’s here. It might have already passed. If any of you are in rentals right now but would enjoy the benefits of homeownership you might want to get in before these prices continue to creep up. That’s what I’m suggesting to you.
But let’s take the smallest increase, 2.44 percent, and let’s put that to a table. Let’s assume a house today is valued at $200,000. By the end of next year, if we’d look at exactly what I said, the smallest increase of 2.44, that house would be $204,880. It will have gone up almost $5,000. But let’s take a look at the interest rates. If what the Mortgage Bankers Association ‐ the people who deal with interest rates every single day ‐ if their projections are accurate and we do hit 4.4 percent by the end of 2013, well, now we’ve had an increase in price and an increase in interest rate.
Let’s take a look at how that affects the long‐term cost of that home. You’ll be paying for the same exact house. You’ll be paying an extra $127.87 a month. Multiply that out, ladies and gentlemen; that’s more than $1500 a year. Over a 30‐year mortgage, that’s $45,000. On a $200,000 house you can buy today, if you wait one year, that house can cost you an extra $45,000.
Don’t wait for prices and interest rates to go back up. If you’re even thinking about buying a home, give me a call and let’s see if buying is right for you. And as always, Call Paul & Start Packing!