Ridgewood Real Estate Blog : June 2009

Interest rates don't matter!

Just recently interest rates for 30 year fixed mortgages spiked up about one percent. What's the big deal about one percent?

Let's take a look at a first time homebuyer and what that does to their purchasing power.

Recently people were qualifying for rates at or below 5%. A $300,000 mortgage at 5% interest on a 30 year fixed loan had monthly principal and interest payments of approximately $1,600. 

The same family will only be able to finance approximately $270,000 at 6% to keep their payments the same. A 1% change in interest rates cost this family $30,000 in purchasing power. Where do you think that is going to come from? The buyers can look at less expensive homes or more realistically this will affect the sellers. If the cost of money goes up, typically home prices will have to come down. We have been in a unique period of time lately. Home prices have come down and the cost of money has decreased as well. A Perfect Storm if you will.

Going forward, the case can be made that we really didn't have much more downside to go in mortgage rates. Consensus is that rates will be increasing, we just don't know when. A concern is that this "stimulus" is just temporary. What will happen a year from now if confidence hasn't been restored and interest rates continue to climb? Not to mention the very real threat of inflation. 

People are sitting on the fence, waiting for "the bottom". There is a flaw in that strategy if you are getting a mortgage. The $300,000 home we are talking about would have to drop 10% or $30,000 for a person to be able to afford it when rates go up just one percent from 5-6%.  The tendency is to forget that the cost of the money you borrow is as important as the amount you pay for a home. The point I am trying to make here is that home prices may or may not go down. Interest rates will probably rise in the future.

Opportunities are great in this market. These opportunities are only for people who are ready to act. Last month I wrote of a home that was originally listed for $950,000 and sold for $395,000 in Wyckoff, NJ. The opportunity was out there for every buyer in the price range, but only one family was able to capitalize. Ironically enough, now that the property has been sold, plenty of people are interested in a "deal" like that.

If you are a seller, this is an appropriate time to be thinking about preserving equity. Based on the past couple of years, I'm sure there are sellers that wish they had sold their homes three years ago. Unfortunately, that ship has sailed. We have worked with sellers who sold their home in 2008 and were glad they didn't wait until 2009.

How long will this current cycle continue? No one knows for sure. History always repeats itself. Coming out of the last housing crisis in the late 1980s home prices were flat for almost 10 years. Are you as a seller, willing to put your life on hold for that long? Hoping to squeeze out every last drop of equity that you can? Folks who have owned their homes for quite some time still stand to make a tidy profit on the sale of their home. Could you wait it out and maybe get more? That answer in a future post. 

 

Get Educated.  Get Empowered.

For more information on this or any other topic, call Sal Poliandro, Broker Associate, Realtor, Marketing Advisor,

Short Sale Specialist

ePRO, SRES at 201-259-2187, visit our websites: http://www.salanddawn.com/ or  www.shortsaleguy.org

Follow me on Twitter: @salanddawn

Sal can be reached by snail mail at RE/MAX Properties 73 East Allendale Road Saddle River, NJ 07458

Get Educated.  Get Empowered.

For more information on this or any other topic, call Sal Poliandro, Broker Associate, Realtor, Marketing Advisor,

Short Sale Specialist and CDPE, Certified Distressed Property Expert

ePRO, SRES at 201-957-7650, visit our website: www.BCHomeTeam.com 

Follow me on Twitter: @salanddawn

Sal can be reached by snail mail at RE/MAX Properties 82 East Allendale Road  Suite 4B Saddle River, NJ 07458

Interest rates don't matter!
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Just recently interest rates for 30 year fixed mortgages spiked up about one percent. What's the big deal about one percent? Let's take a look at a first time homebuyer and what that does to their purchasing power. Recently people were… more