Jackie Thom - Wilmette and North Shore Real Estate

Jackie Thom

 
Buying a home? The COST is more important than the PRICE

I have often advised buyers to look at the COST of purchasing a house more than the PRICE of the home. Obviously, price is part of the cost equation. The other piece, assuming you are not an all cash buyer, is the mortgage rate. The mortgage rate to finance a purchase can have a dramatic impact on the overall cost. Recently, there are more people talking about the possibility that mortgage rates could begin to increase.














 

HSH.com studies trends in mortgage rates. They explain:
"A better economic climate almost always brings higher rates, and a lessening of the troubles in Europe from massive central bank assistance adds to the movement of money from safe havens to more risky assets, driving rates upward."

Dan Green of The Daily Market Reports recently stated:
"The Fed sees growth coming faster than originally expected. There’s suddenly less chance that the Federal Reserve will intervene to help keep mortgage rates low. Absent Fed intervention, mortgage rates are apt to rise and Wall Street is now betting that the Fed has bowed out. With no stimulus, mortgage rates rise."

Lawrence Yun, chief economist for the National Assoc of Realtors, recently wrote:
"Mortgage rates will be starting to rise. From the 3.9 to 4.0 percent average rate in the past five months on a 30-year fixed mortgage, the new rates will soon be in the range of 4.3 to 4.6 percent."

We do not attempt to predict future interest rates. We leave that up to the experts in the field. However, we want our readers to understand the potential impact on the cost of purchasing a home if they do rise. Here is a simple table that shows, even if the PRICE of a home softens, the COST of a home could increase.

Many purchasers think they should wait until they are sure that prices have hit bottom. Deciding whether or not to wait should be determined by where the COST of a home is headed.

Courtesy of: The KCM Crew on March 19, 2012



4th Straight Week of Falling Rates
May 24, 2012 - Freddie Mac reports the 30-year benchmark dipped again to 3.78, down from 3.79 a week ago.  Frank Nothaft, vice president and chief economist for Freddie Mac notes that fixed-rate loans remaining at record lows are helping to drive homebuyer affordability. FULL ARTICLE
3.11% 15-Year Mortgage Rate a Record Low
Mortgage giant Freddie Mac reported on April 12, 2012, that the average 15-year rate for mortgage deals done the previous week was 3.11 percent - making monthly principal and interest payments on a $200,000 mortgage about $1,392. Frank Nothaft, chief economist for Freddie Mac, noted that rates fell for a third straight week in part because of the weak monthly employment report.
5 Great Reasons to Sell Your House Today by the KCM Crew



We are often asked “Is it time to sell my home?” The answer to that question is based on what your families’ goals are. If you don’t need or want to move for a few years it might make sense to wait for the housing industry to recover and prices to appreciate. However, if you wish to move within the next six to eighteen months, it is probably better to sell sooner rather than later. Here are five reasons why:


Your House Will Get More Exposure Now Than the Winter


Housing sales usually level off in the summer and then regain momentum in September and October. The spring buyers’ market has passed. Don’t miss the early fall market. It has consistently outperformed the winter season.


Distressed Properties Will Impact Prices


Distressed properties (foreclosures and short sales) on the market will increase this fall and winter. This will put tremendous downward pressure on prices for at least the next 12-18 months. Get your home sold before they become your competition.


Mortgages Will Become More Difficult to Attain


Lending standards are continuing to tighten. There is legislation currently being considered that will make it even harder for buyers to qualify. Less demand will equate to lower prices.


It is the Perfect Time to Move-Up


With prices where they are and interest rates at all time lows, there may have never been a better time to move-up into your dream home. If you move into a more desirable home now, you will be in position to gain larger equity as prices eventually appreciate.


You Get to Move On with Your Life


Probably the most important reason to sell is so you can get on with your life. You are considering selling for a reason. Do not allow a less-than-stellar housing market prevent you from reaching your goals as an individual or as a family. Think about the reasons you are thinking about moving. Are these reasons really important to you? If you have to take less than you were originally hoping to get for your house, your family has a question to ask each other: Is the dollar difference in sales price worth putting off our plans? Only you and your family know the answer to that question.


FSBO a No Go!

This blog prides itself on the quality of real estate information we deliver each and every day. We try to gather empirical evidence to validate the positions we take. We do not use just an anecdotal story to make a point. We also do not get caught up in the sensationalism of the moment. However, today will be different.


We can’t resist commenting on the story which recently appeared in the Wall Street Journal regarding Colby Sambrotto, the founder and former CEO of forsalebyowner.com. It seems the founding father and livelong evangelist of the concept of selling your home without a real estate agent was forced to hire a broker to sell his home after failing at what he preaches others should do.


After failing to sell his NYC apartment on his own as a For Sale By Owner (FSBO), Sambrotto hired a broker and paid a 6% commission in order to get the job done. His personal experience helps refute some of the myths Sombrotto has been espousing for over a decade. Let’s look at two of those myths:


Myth #1 – You Will Pocket More Money Selling on Your Own 


Most FSBO sites say you can save the commission by selling on your own. What happened in Sambrotto’s sale?


From the WSJ article:


“The broker, Jesse Buckler, said he told Mr. Sambrotto the apartment in the Lion’s Head building on West 19th Street near Sixth Avenue was priced too low and wasn’t drawing the right buyers.


By May, it went into contract, he said, after attracting multiple offers. It closed in the last few days for $150,000 more than the original asking price.”


Myth #2 – The Internet Alone Can Sell Your Home


Many have said that, with the introduction of home search on the internet, hiring an agent is no longer a necessity. What happened to the FSBO guru when he attempted to only depend on the internet?


From the WSJ article:


“Looking to move his family to the suburbs, [Mr. Sambrotto] said he carefully staged his apartment for sale himself, and put it on the market. But after using a mix of websites to publicize his apartment, he said he had only ‘middling success’ and switched to a broker because many buyers were so reliant on brokers.”


Bottom Line


There is a reason the real estate industry has been around for centuries: it performs a valuable service.

If Your Goal Is to Buy Low, Buy Now!

There is a very famous saying which asserts “Sell High, Buy Low”. It is obviously great advice no matter what the investment. Below is a graph showing the cycle of investments. It shows the points of maximum risk and maximum opportunity when purchasing. We want to sell high (point of maximum risk) and buy low (point of maximum opportunity).


The challenge is how to determine when we have hit bottom if you are a purchaser. The only time you can guarantee a bottom is after you pass it.



However, there is more and more evidence that the COST of a home has in fact hit bottom. Notice we have used the word COST. Unless you are an all cash buyer, you must take into consideration the expense of financing a property to determine the true cost of purchasing the home. Interest rates have increased over the last quarter; and the rise in rates has counteracted any fall in prices.


Let’s look at an example:


Let’s say you were going to take out a $200,000 30-year-fixed-rate mortgage in November of 2010. At that time, interest rates were 4.17% (as per Freddie Mac). Your principle and interest payment would have come to $974.54. According to the most recent report from Case Shiller house prices fell 3.9% in the 4th quarter of 2010. The most recent report from the Federal Housing Finance Agency shows a 0.8% fall in prices. Let’s use the larger percentage decrease: 3.9%.


For the sake of keeping the math simple, we will now say you can get the same house with a $192,000 mortgage (4% discount from November price). Interest rates are now 4.95% (as per Freddie Mac).


Your principle and interest payment would now be $1,024.84.


By waiting to pay less for the PRICE of the house, the COST increased over $50 a month. That adds up to more than $600 a year and over $18,000 over the life of the loan.


We realize that there are other things to consider (ex. the mortgage tax deduction, etc.). This example is just a simple way to show that there is a difference between COST and PRICE.


Bottom Line


If you want to buy low, buy now. It appears COST has hit its lowest point.

The Pendulum Swings. . . .
These past few years have been nothing short of a roller coaster ride and economists still do not agree as to when a recovery will arrive and at what pace. Each leading economic indicator is produced by a different company and is used by different analysts for different reasons, making it hard to know whom to believe.
For example, traditional news outlets and national forecasters use the S&P Case-Shiller housing data which studies 20 of the largest American cities as well as the National Association of Realtors' existing homes data which is also a metro studiy whereas their home pricing index is a sampling of MLS reports.  RealtyTrac produces reports on foreclosures  and and Core Logic data is used by the Federal Reserve Board in its research.
Jackie Thom,  ABR, SFR, RENE
Jackie Thom, ABR, SFR, RENE
(773) 617-7361

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