Real Estate Buying Power for 2014~Interest Rates Have a HUGE Impact!

This coming May 2014, I will have been a Real Estate Broker for 10 years!

At the start of my real estate career, the average 30-Year Fixed-Rate Mortgage came in around 6.27%! As you can see from the attached Infographic, rates have fluctuated over those 10 years hitting a low of 3.35% in November 2012 to the current rate of 4.46% at the end of 2013.

What’s crazy is that when we purchased our 1st home in 1981 the average  mortgage interest rate was 16.63%! I hope we never see those rates again!!!!!

Take a look, find yourself in the numbers below…

Infographic compliments of Zillow.

Have We Hit the Bottom of the Seattle Real Estate Market?

Have you been hearing we’re in the perfect storm for Seattle Area Real Estate for a while now…?  Well it really isn’t hype.  Have we hit the bottom of the Seattle Area Real Estate Market?  Here’s the secret; by the time we KNOW we’ve hit bottom of the turbulent real estate market, we’ll be on the way back up.  It’s fact; here are the signs:

• 3- quarters of record sales recorded in 2011 (qtrs 2, 3 & 4) over prior years
• Record low interest rates…sounds like a line, but it takes a 10% price reduction to make up for 1% of interest rate reduction…Interest rates are POWERFUL right now!
• Prices have come down since 2008, but the signs are there that we’re stabilizing at a Balanced Market (source: NWMLS)
• New construction is rising by approx. 40% for 2012 and even more for 2013 & 2014.  This has been stagnant since 2008.
• Seattle Economics are diverse and strong (consider all of the large companies here)

Where do YOU think we are?  Are you still waiting to find the bottom?

Mortgage News

Mortgage Amount vs Monthly House Payment

I read a great post today from a local Seattle lender that I wanted to share with you.  It’s talking about the pro’s & con’s taking out a 20 yr, 15 yr or 10 yr mortgage.  It has good tips to consider and other ways to pay-down a mortgage early without getting into a cash-flow concern.  As Rhonda Porter is finding out in the mortgage business and I in the real estate business, people in general are becoming more prudent on their mortgage amount by determining how much house can they buy with a specific $$ house payment, i.e., in other-words, backing into the house affordability number by starting with a comfortable house payment.

Learn more about whether you should Payoff Your Mortgage Quicker vs a shorter-term mortgage.  Mortgage interest rates are still at record lows.

Real Estate Market for Buyers: Questions and Answers Part 1

Interest Rates - 50yr Low

I frequently get asked random questions about the real estate market in the Seattle Area, so I thought I’d start a  Q & A series to address the real estate market for buyers.

Q:   Why should I buy now if prices haven’t yet hit the bottom of the market?

A:  As a real estate buyer, your primary concern should be the full cost of purchasing a home, not just the purchase price.  What will your over-all monthly payment be?  To answer that, you need to know what goes into a monthly payment:

1.  Principle – the amount of your monthly payment that goes towards the repayment of the original loan (mortgage) amount.

2. Interest – this is the biggie! (More important info on this below.)  This is the amount the lender is charging a buyer for borrowing money to purchase a home.

3. Taxes – annual amount of real estate taxes charged for the home (broken into 12 monthly payments), based on the property tax rate for the city & county and the tax assessed value of the home.

4. Insurance – the annual homeowner’s insurance policy based on 12 monthly payments.

So now that you know the 4 components that make up a monthly mortgage payment (PITI for short), let’s analyze the components that have the most volatility.  Taxes and insurance are the most steady elements of the house-payment.  So here’s the key part!   Let’s look at this example with changing purchase price vs changing interest rates:

Purchase Price of $550,000  @ 4.5% interest is a monthly house payment (PI) of $2786.77

Purchase price of $550,000 @ 3.5% interest is a monthly house payment (PI) of $2468.75

Purchase price of $525,000 @ 4.5% interest is a monthly house payment (PI) of $2660.98

The main point here is that a 1% interest rate drop far exceeds the savings of a $25K price drop.  In fact, at this price point, it will take at least a 10% (+) price reduction to equate to a 1% interest rate drop…so if it’s your time to buy, get the best price on the home that you can, and align your home purchase with your life, not the market.   Have we ever seen interest rates this low…not in my lifetime!  Or look at it another way:  interest rates won’t be this low forever, so with each potential uptick of interest rates, your purchasing power drops, sometimes in chunks of $50K or more.  Maybe we’re focusing on the wrong thing when buying real estate; housing prices are already at 2007 lows but interest rates are at 50 year lows…your thoughts?

Mortgage Rates Equal Buying Power

Historical Mortgage Rates

My various mortgage team members are always telling me that we really are in a special time for the real estate market.  From a lender’s perspective, mortgage interest rates are “king”, and after seeing and understanding the pictorial of that message, I too want to emphasize the relevance of mortgage rates right now…!  We saw 50-year lows in Sept 2010 and we’re seeing a slight increase over the past few months, but look at the big picture…the 1980’s saw upwards of 19% mortgage rates, and people still knew it was better to buy a home than rent.  The long-term equity growth was still worth it in the 80’s.

So what does that mean now in the 2010’s?   Your equity growth potential is HUGE right now.  (Even Warren Buffett is on this bandwagon…)  Your buying power is greater now more than ever…as mortgage rates increase, your buying power decreases…today you can afford more home than you will with the next mortgage-uptick.  Mortgage rates are still at historic  lows and eventually will increase…home prices have already hit the bottom of the economic housing bubble and are slowly working their way up in the Seattle area.  Are you going to kick yourself in 5 years (or less), wishing you would’ve taken advantage of the current housing prices and the mortgage rates?

Real Estate Economics Q4 2010

Seattle Real Estate Economics

Matthew Gardner of Gardner Economics has published the 4th quarter 2010 real estate economics for Western Washington.  Worth your time to read and ponder…Notice page 4 and the projected real estate growth for your county…Gladly entertain any discussion…

Real Estate FAQ’s, #3

Continuing on in my series of Real Estate FAQ’s, here’s the #3 most asked question: “When are we going to get to the bottom of the market?” Wish I had that crystal ball!  We have to go on facts and data and by that I mean historical data…what has been happening with real estate sales and what is the trend.  Where are we with unemployment?  Where are we with interest rates?  All magical questions that we really won’t know until it’s already happened, we watch trends as they’ve never lied.

Here’s a little info on , historical and estimated prediction of mortgage rates by economists.  The lower half in dark is the purchase volume of mortgage money spent; the upper portion in light is the re-finance dollar volume spent by year.

A common statement I’ve gotten from open-house lookers is “I’m waiting for the bottom of the market before I buy”…My next line is, “when you discover when that is, will you share with me?”  Same goes for interest rates; interest rates won’t be at these 50-yr  lows forever, and while they are so low, they TOTALLY impact a buyer’s purchasing power.  Every .25% of interest rate increase removes approximately $50K in purchasing power…So where do you think the bottom of the real estate market is and when will it be?   Watch for my monthly stats of Seattle Eastside to help you see the historical pattern.  I’m interested in your thoughts…

Weekly Mortgage Rates August 03, 2010

Peoples Bank rates for Monday August 3, 2010*

Apply today for .50 off your origination fee!

30 year fixed:	4.125	with	4.2538	APR
15 year fixed:	3.750	with	3.8864	APR
5/1 ARM:	3.000	with	3.1825	APR

*rates based on 250,000 purchase price/20% down/740
plus credit score, subject to credit approval, offer expires
August 30,2010

Weekly Mortgage Rates July 12, 2010

Aren’t these rates something else??

Peoples Bank rates for Monday July 12, 2010*

Apply today for .50 off your origination fee!

30 year fixed:	4.250	with	4.406	APR
15 year fixed:	3.750	with	4.021	APR
5/1 ARM:	3.125	with	3.271	APR

*rates based on 250,000 purchase price/20% down/740
plus credit score, subject to credit approval, offer expires
July 30,2010

Seattle Real Estate Trends…Revealed!

On Thursday, July 15 at the Peoples Bank in Carillon Point in Kirkland, I will be participating in a Panel Discussion on local real estate trends.  With regard to real estate, this will cover local economics, historical data, trends and projections, interest rates (now and projected), home appreciation, overall savings, tax savings and so much more.  The format is flexible and meant to be a two-way discussion, so come and bring your questions.  Hope to see you at  Seattle Real Estate Trends…Revealed!