Articles
A Great Time To Buy a Home
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| I was seldom able to see an opportunity until it had ceased to be one! Mark Twain |
Why This Should Be a Great Time To Buy a Home.
The Perfect Rainbow?
The Incredible Effect of Low Interest Rates
The Importance of the Best Representation
(Please also see a new blog, right menu, "MARKET WATCH/Market Blog"....a reprint from an article just published in the Huffington Post by John R. Talbott, the only national figure to predict the housing collapse, now says "Homes - Buy Now!"
The Perfect Rainbow?
Of course, you’ll recall the popular movie of a couple of years ago…The Perfect Storm! It was an unlikely but memorable name…and The Perfect Rainbow is a lot easier to visualize!
We’re not saying the storm we’ve been through was “perfect”, but it was a formidable event, and to a degree, still is….like the drizzling that follows a local storm.
But rainbows always follow, sneaking up as the sun peeps through a clearing sky, showing even on that retreating drizzle.
From all aspects, the housing prospects for buyers could easily be called The Perfect Rainbow. We don’t recall circumstances any more promising, and we're betting it won’t happen again soon.
- There’s great inventory from which to choose – (some even a bit hidden, held off.)
- Surely we’re at, or close to, the bottom of the value/pricing curves.
- Values appear to have stabilized, especially locally – and certainly not likely to go lower.
- The competition generally isn’t yet formidable.
- Money is available, at all-time low rates, but rates are always "anxious" to rise. (The long term effect of interest rates is simply staggering....see the next section here.)
- The “affordability index” is at an all time high.
- Of course we can't predict precise "bottoms" or when the upward trend will really become clear, but by that time, interest rates will be clearly racing alongside. We're simply saying that with careful attention to resale and the best help possible, there are compelling reasons to exercise contrarian thinking, right now.
The Incredible Effect of Low Interest Rates:
There are two examples given here of the awesome short-term and long-term effect of low interest rates, and a discussion about how this factor could very much affect the timing of entering the home buying market,
Example "A" shows how an increase of 1% and 2% in interest rates affects the price of the home you “can” buy. It assumes you can "afford" $ 954.83 per month in payments at different interest rates, which directly determines how much you can borrow….yet interest costs, at the higher rates, despite a lower purchase price, are still higher…the 10 year mark used to measure.
One could “look at it” in another way: if a buyer waited for a future lower value, and interest rates rose just 1%, he would have to have a $22,123 discount in today’s $200,000 home to make up for the higher interest rate. And he would be paying more long term interest.
If interest rates rose by 2 points to 6%, the discount would need to be $40,743.
Then as it relates to the decision-making process, the 4% interest rate is today’s fact…the future discount a possibility.
4%
5%
6%
same pay
954.83
954.83
954.83
(same "maximum")
loan amount supported
200000
177877
159257
as % of $200,000
100%
90%
80%
difference in loan amt.
base
22123
40743
(less)
At the 10 year mark:
10 yrs of payments
114579
114579
114579
(same)
10 yr balance on loan
157538
144688
133276
paid principal 10 yr
42462
33189
25981
More equity at 4%
paid interest 10 yrs
72117
81390
88598
Less interest at 4%
Example “B”: This shows the total difference (not discounted for time) for a loan of 30 years at the fixed rates shown, when repaid (home sold?) at 10 and 20 years, or kept until the loan is paid in full. The point: differences in interest rates makes a huge difference in the total loan repayment…(and it's skewed, most dramatic in the early years, obviously because more interest is paid in those years.)
Taking advantage of current interest rates is a goal in itself…a big factor in choosing when to re-enter the market….larger than commonly viewed without a workup like this.
|
|
Interest Rate: |
4% |
5% |
6% |
|
|
|
|
principal |
200000 |
200000 |
200000 |
|
|
|
|
monthly pays |
954.83 |
1073.64 |
1199.10 |
|
(for a 30 year amortization) |
|
|
10 yr balance |
157538 |
162684 |
167371 |
|
balance on the loan |
|
|
total paid |
114580 |
128837 |
143892 |
|
payments X 10 years |
|
|
paid principal |
42462 |
37316 |
32629 |
|
therefore, principal paid down |
|
|
interest |
72118 |
91521 |
111263 |
|
total pays less principal |
|
|
difference |
|
19403 |
|
|
1% interest difference |
|
|
|
|
|
39145 |
|
2% interest difference |
|
|
20 yr balance |
94309 |
101225 |
108007 |
|
balance on the loan |
|
|
total paid |
229159 |
257674 |
287784 |
|
payments X 20 years |
|
|
paid principal |
105691 |
98775 |
91993 |
|
therefore, principal paid down |
|
|
interest |
123468 |
158899 |
195791 |
|
total pays less principal |
|
|
difference |
|
35430 |
|
|
1% interest difference |
|
|
|
|
|
72323 |
|
2% interest difference |
|
|
30 yr balance |
0 |
0 |
0 |
|
balance on the loan |
|
|
total paid |
343739 |
386510 |
431676 |
|
payments X 30 years |
|
|
paid principal |
200000 |
200000 |
200000 |
|
therefore, principal paid |
|
|
interest |
143739 |
186510 |
231676 |
|
total pays less principal |
|
|
difference |
|
42771 |
|
|
1% interest difference |
|
|
|
|
|
87937 |
|
2% interest difference |
The Importance of Good Representation:
It's always important....but even more critical in these days.
Of course, we consider that the concept of “Exclusive Buyer Representation” is far more likely to result in best possible selections, making the best possible decisions from options presented objectively. The consultant-style unbiased support, and attention to resale making critical differences.
This site is dedicated to defend that.