Why Should You Buy Now?
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JULY 2012 |
JULY 2013 |
Assumptions:
Conventional 30-year Fixed
LTV = 90%
Mortgage payment =Only ( Principal + Interest )
Please see below for details. |

|

|
Sale Price |
$300,000 |
$351,000 |
Interest Rate |
3.55% |
4.49% |
Monthly P+I |
$1,219.97 |
$ 1,598.74 |
Total P+I Payments for 30 years |
$439,190 |
$575,540 |
Initial Down Payment (10%) |
$30,000 |
$35,100 |
Seller Concessions and Repairs |
-$6,000 |
0 |
Total Cost=P+ I+ Down Payment-Seller Concession |
$463,190 |
$610,646 |
WA!! The same house
cost, for the life of loan 30 years, about $147,456 more today compared to
the last July purchase, an increase of 49.15%, almost 50%, the
initial purchase price.
Remember those Buyers
days, last six years up to the end of last year, where Buyers had
all the power of negotiations, low offer and record low interest
rate. In addition to that, Buyers almost all the time were getting
some sellers concessions at closing and some allowances in lieu of
repairs based on the inspection and other professional reports.
With all these advantages, still many qualified potential Buyers,
were not purchasing their dream homes. When I asked, their reply was
that they are not certain about the future of housing, economy and
they were hoping interest rate goes more down. No matter how much we
emphasized that interest rate around 3% would not last forever nor
even for a long time and they should take advantage of that great
market and act quickly, still they hesitated to act and did not buy.
After about six years
of housing collapsed, the market changed from Buyer’s market to
Seller’s market.
Now in today’s Seller
market, where there is a shortage of listings and as soon as a house
comes to the market there are several offers by next day with full
price or higher, Sellers ask for much higher price and don’t
negotiate or compromise. There are almost no Seller’s concessions at
closing or allowances in lieu of repairs based on the inspection
report. The interest rate in the last couple of months has raised
more than 1%. Based on many national and state-wide studies, during
the past year, home prices increased in 92 of the country's
100 largest metropolitan areas.
In Dallas Fort Worth Metropolitan area, for the
month of June 2013, many of the houses were sold with double-digit
percentages higher than a year before (June 2012).
Specifically, for the City of Plano part of the
Collin County Texas where I live, we have the following Sales report
from the North Texas Real Estate Information Systems (NTREIS) MLS
for the Month of June 2013:
Sold Data for City
of Plano. Texas for the month of June 2013
City |
Average |
%Change |
Median |
%Change |
Plano |
Price |
Year Ago |
Price |
Year Ago |
Texas |
$340,312 |
17% |
$287,000 |
17% |
Average Sale Price Increased:
As you see the Average Sale Price and Median Sale Price for this
city has increased 17% compared to the Average Sale Price and Median
Sale Price from exactly one year ago in the same month. Many other
Cities gained more than 17%.
Interest Rate Increased:
Now let’s talk about the interest rate: In last two months or so the
interest rate has suddenly gone up more than a 1% (April 2013
3.54% vs. July 22nd 2013 4.55%). (Ref.
http://www.mortgagenewsdaily.com/mortgage_rates/ )
The 30-year fixed interest rates for the month
of July 2012 and July 24th 2013 were 3.55% and 4.49%
respectively. This is an increase of 0.94% in Interest rate, Almost
1%
Seller Concession and Allowances Decreased (or Eliminated):
Seller Concessions: Based on my personal
experiences in my area, Seller typically used to agree to pay
$3000-$5000 at closing cost. This was about 1.5%-2.5% of the sale
price. Let’s use 2%
Seller Allowances: Again based on my personal
experiences in my area, Seller typically used to agree to pay
$1000-$3000 at closing cost in lieu of requested repairs, Home
Warrantee, etc. This was about 1.0%-2.5% of the sale price. Let’s
use 2%
Loss Calculation for
Buyers:
Disclaimer:
This calculation assumes conventional loan with no PMI, upfront fee,
HOA, other closing costs. In the case of FHA the MIP and MIP Upfront
fee have been increased 10 base-point compared to the last year fees
and also MIP fee now must be paid for the entire life of the loan
(30 years) vs. about 11 years from last year. Also, no closing cost
calculation is performed.
If a Buyer had purchased a house in June of
2012, with a purchase price of $300,000, loan amount of $270,000
(LTV=90%) and 30-year fixed Interest rate of 3.55%, his/her payment
would have been $ 1219.97 per month. His/her down payment
would have been $300,000 -$270,000 loan - $6,000 (average Seller Concession
and Seller allowances for repairs, HW, etc.) -> Down payment
=$24,000
Total Cost = 360 * $1,219.97+$24,000 =
$463,190
Today, the same house, would sell for 17% more
($351,000), loan amount of $315,900 (LTV=90%) and 30-year fixed
Interest rate of 4.49%, his/her payment would have been $ 1,598.74
per month. His/her down payment would have been $351,000
-$315,900 loan - $0,000 No Seller Concession and Seller allowances
for repairs, HW, etc. -> Down payment =$35,100
Total Cost = 360 * $1,598.74+$35,100 =
$610,646
Conclusion:
Sad Fact: The Buyer who did not buy his/her dream house at
$300,000 last year in June 2012, now he/she has to pay about
$147,456 more (in 30 years) to own the same house
that initially you could purchase for $300,000.
What a loss!
Happy Fact: The economy is improving,
the interest rate rising, the home prices jumping, therefore, DO NOT
wait until next year to purchase your dream home. Otherwise, my
report and analysis next year, most probably, will show another big
loss compare to this year and month loss.
If you are in the
market and qualified, buy your
dream home now.
Each 1% increase in the interest rate, will
reduce the Buyer’s affordability more than 11.22%. To see the effect
of 1/8%, Ľ%, 3/8%, ˝%, 5/8%, ľ%, 7/8% and 1% increase in the
interest rate vs. Buyer’s affordability, please see my other blog
at:
http://activerain.com/blogsview/3701135/1-increase-in-interest-rate-will-decrease-your-buying-power-by-11-22-
OR visit
http://www.texasfivestarrealty.com/Increase_1Percentage_Interest_Rate.asp
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