Could Buyers Be Ready To Get Off the Sidelines?

rent rates

Falling home prices have sent many would-be buyers to the sidelines. In many cases, record low interest rates and rising rents may prompt some of them to take a second look at buying.

Much of the decision to buy a house still depends on your personal finances and preferences, your career or family life, or level of financial security. But if you’re comparing just the cost of owning and renting, buying a house may soon be the better choice.

Until recently, home ownership was no bargain compared to renting, according to his analysis.  A 33 percent drop fall in home prices, a plunge in mortgage rates and 15 percent rise in rents since the housing crash has evened the scales. Today, the median monthly mortgage payment of about $700 has fallen to about the level of a median monthly rent check. If mortgage rates keep falling and rents keep rising, the equation will tip even further toward owning.

But that analysis doesn’t include the total cost of owning versus renting. A full accounting includes closing costs, maintenance, insurance and property taxes, tax savings from mortgage deductions, gains or losses from home equity, among other factors. Renters have to think about broker fees and future rent hikes. Both have to make assumptions about future trends in housing prices and rents.

When you take those factors into account — someone who plans on staying put for seven years would come out ahead by about $9,000 if they bought a median-priced home rather than being a tenant in a median-priced rental, assuming that rents keep rising by about 3 percent a year and that house prices stay flat in 2012 and 2013 and begin rising in 2014 at about 3 percent a year.

If you would like to investigate this more, shoot me an email or call 206-713-3244

A Cost Comparison of Home Ownership

To-Buy-or-Not-to-Buy-lgIn recent years, real estate has become something of a polarizing topic; there are those who argue that it’s still a worthy long-term investment with tangible benefits; and others who don’t see the value of owning a home, financial or otherwise. Regardless of which side of the argument you come out on, housing is a major part of our national economy. Furthermore, people are always going to need a place to live, so it’s a worthy discussion to be had.

There are a number of catch phrases that have become quite popular amongst real estate agents and media alike, such as “now is the time to buy” and “it’s a buyer’s market”. For some people, right now is a great time to buy a home, but for others, it’s not. The point is that buying a home is a personal decision based on each buyer’s unique circumstances. There’s no “one size fits all” model when it comes to real estate, so the best you can do is arm yourself with the right information so you can make the best decision for you.

TGChartImageWith this in mind, we thought it might be interesting to compare today’s real estate market with that of 2006 when housing was at its peak. Five years ago, home values were soaring, sales were frenzied, and home ownership was at an all-time high. Inventory levels simply could not keep up with demand, so bidding wars were commonplace and homes flew off the market in record time.

Today’s market is very different. It’s important to remember that all real estate is local, so markets can vary greatly – even within a single city – but there are some general trends that we’re seeing across the board. The first is home prices; very few areas were spared from the effects of declining prices. Inventory levels in recent years have also been higher than they were in 2006 and the average amount of time that it takes to sell a home is longer. All of this points towards this being a buyer’s market. Other buyer advantages include historically low interest rates and strong affordability. With this in mind, here are some interesting stats to consider:

  • The average interest rate on a 30-year-mortgage today is 4.13%(2) and in September 2006 it was 6.41%(2)
  • A $400,000 house today would have cost $642,650 in September 2006(1) which is a difference of $242,650. *The following scenarios assume these home prices.
  • Using the above home prices and interest rates, the monthly payment today would be $1,939.76 and in September 2006 it would have been $4,024.02 – a difference of $2,084.26 per month.
  • The $2,084.26 per month savings adds up to a total of $750,333 when multiplied over the term of a 30-year loan.
  • If today’s buyer took out a 30-year-loan at the current interest rate (4.13%), but made the same monthly payments as the buyer in 2006 ($4,024.02), the loan would be paid off in just over 10 years – the buyer in 2006 would still have almost 15 more years of payments.
1) calculated using FHFA figures for the West Coast in September 2011
2) from FHLMC website for September 2011

real-estate-mathThe math above is compelling, especially when you consider how much money is saved on compound interest over the life of a 30-year loan for the same home. But regardless of what the numbers show, buying a home is much more than a financial decision, it is one that is personal and should be reflective of each individual’s needs and circumstances. Unfortunately, we don’t have a crystal ball and cannot predict what interest rates are going to do or how the market is going to grow and change, but we do know people will always need a place to call home – and as long as that is the case – we will be here to help them.

If you are interested in how this market affects you and your choices, please call me at 206-713-3244 or email