Mortgage interest rates are on the rise. I've been preaching this for some time now (see my blog post of February 21, 2011) but the Federal Housing Finance Agency has made it official: the average mortgage interest rate hit 5.06% for the month of March. The last time the rate was as high as 5% was last June. This latest announcement highlights the undeniable upward trend in mortgage interest rates since November of last year when the average rate was 4.38%. This represents an approximate increase of 0.124% per month.
As I wrote back in February, the interest rate you pay has a much more dramatic effect on you mortgage payment than the price of the house. Let's just assume the beautiful home pictured above is your dream house. And let's further suppose it's on the market right now at $400,000. If you finance $320,000 (a typical 80% loan to value) at 5%, ignoring taxes and insurance for the sake of simplicity, you would have a payment of approximately $1,718. Let's now assume that, as is expected, property values continue to decline. Let's take a guess of another 5% reductin in property values between now and the end of the year. Let's also assume the interest rates are on the rise and increase at the same 0.124%. Mortgage interest rates would then be around 6.116% - so let's calculate for 6.125% - a much more likely number. Your mortgage, should you wait until December to buy, would then be based on a purchase price of $380,000, you would be financing $304,000, and your mortgage payment would be approximately $1,847, an increase of $133, or nearly 8% more per month than you would have paid had you bought now. Seems crazy, but it's true. My dad always says "Figures can't lie, but liers can figure," and this is a perfect example of that old anecdote. No matter what anyone says about waiting until the market hits bottom they are either dumb or lying. NOW is the time! Those numbers just can't lie. So buy that beautiful home now or wait until all you can afford is:
As the spring market starts winding up, my clients and friends are asking me about real estate market trends in New Castle County. I thought I would dedicate some posts on my blog to shed a little light on the topic. This is the first in a series of postings, so look for more to follow very soon. New Castle County is an interesting market. There are a lot of attorneys here due to so many large corporations making Delaware their state of incorporation. A large university (UD), a large bank (Bank of America) and a large multi-national conglomerate (DuPont) tend to dominate employment. It’s pricier here just due to being on the east coast. There is further price support for New Castle County real estate because real estate taxes in Delaware are so much lower than New Jersey and Pennsylvania. Many who work in Philadelphia chose to live here instead, thus creating more demand than there would otherwise be.
Speaking of demand, let’s get right to it. The laws of supply and demand, as the country has been so brutally reminded of over the last few years, are alive and well doing what they do. Real estate market trends in New Castle County have followed the same track as most of the country. Supply is up, demand is down, ‘nuff said really, but I’ll add historical detail for perspective. The charts I’m posting in this series come directly from TREND, the MLS for the region. The first chart shows total inventory of single family residences for New Castle County – that is, the homes that were on the market month by month over the last nine years and into the first quarter of 2011.
The years 2002 through the middle of 2005 are pretty steady with between about 1,200 to 1,500 houses on the market at any given time. The bubble clearly starts to inflate at the middle of 2005 and 2006 then shows the stampede to the market as homeowners started cashing in on new-found equity in real estate. Demand was increasing and supply was stretching to meet it, and those who had been in there homes for a long time were taking a tidy profit. Inventory climbed even higher in 2007, exceeding 3,000 homes on the market in New Castle County for the first time ever. By the fall of 2007, many real estate professionals were already worrying that the level of inventory would exceed demand as prices continued to inflate – that even without any aberrations in the mortgage markets there would have to be a correction driven by the normal market functions. By the summer of 2008, most real estate professionals were saying it just cannot last. Then the Lehman Brothers tragedy hit and prices began their long decline.