The Cost of Complacency

Real Estate Agent with 43 Degrees North Real Estate
Boise Idaho

Well it has happened hasn't it. - If you are a first time home buyer you have missed the bottom. I have tried to explain in several blogs and emails about taking advantage of the market conditions while the market was cold and the interest rate was hot. Now with a 1/2% interest rate hike last week to 5.5% we can fully appreciate the previous 4.8% financing....and we won't even talk about the rarefied air of the 3.875% financing that was available on select properties.

So now you want to know will the rate come back down. The answer is maybe - but probably not. No one knows the answer,( just as no one could predict when the rate would go up). What I can tell you is we have definitely reached bottom in the under $200k price range. In the last 90 days home prices have stabilized in the sub $200k range and the ratio of sales price to asking price has increased from 95% to around 98%-99%. The 1st time buyer Tax Rebate program has been effective in getting the lower price range moving.  

With the Government increasing the Bond prices to attract investors the mortgage market is not looking as competitive and obviously investors are only loyal to the return on their investment.

The cost of complacency is more poignant when you consider the cost of mortgages relative to purchase power. Lets say you were looking at buying a $200k home with FHA 3.5% minimum down which would give you $193k loan @ 5% for a $1036. monthly payment. Now lets say while you re waiting for interest rate or home price to drop the rate goes up to 5.5%. Now your $193k loan payment goes up to $1095 per month. This .5% change in interest rate = $11,000 in purchase power! In other words you could have bought a $211,000 home with 3.5% FHA down for a $203,615 Loan amount at 5% interest for a $1093. payment!

You may say well I'm not a 1st time buyer so I am not affected as much. OK let's look at your situation. Let's say you have a $210,000 home and you have held off lowering the price $10k because you want every dollar you can get (don't we all!) Now lets say your move up home is going to be $300k and your going to put 20% down for a $240k loan. At 5% interest rate your monthly would be $1288. Now lets say you hold off for 90 more days trying to extract that infamous $10k on your existing house and in the meantime interest rates go up to 5.75% - Your monthly payment goes up to $1400. -  If you would have lowered your sales price to $200k and taken the 5% money you would be $54 a month ahead even after borrowing $10K more because you took 10k less for your house!

Here is the bottom line: The cost between what you are trying to achieve today and what you will be able to achieve tomorrow will never be less than it is right now today. The longer you wait the greater the distance is going to be between what you can buy with your money today and what you can buy later. We all know that these low rates will not sustain  We know that recovery will take place and with the new administration quadrupling the national debt we can be assured that we are going to have inflation. New construction is at a 2 decade low in cost of building. Building lots have been slashed in half to sub 2002 levels or lower. The cost to develop a lot tomorrow will exceed the cost of a building lot today if the bare ground was free! Builder, developers and banks are willing to sell at bottom prices to either promote growth or clear inventory.

Do what you have to do to take advantage of these conditions today! You are no longer in a gaining position by waiting. If you need to sell 1st, drop the price and make it move and take the hit. If you don't have to sell then seriously start your purchasing process now. You are going backwards while you wait.

Every 1/2% jump in interest rate on a $200k loan  costs $11,289. in loss of purchase power. Are you stepping over a dollar to pick up a dime?

Let those that have ears hear - I am here waiting for your call - Let's move while we can - you have the advantage - Use it or Lose it!

Dale Alverson
e-Pro Certified
Certified Buyer Broker (CBB) - (Only One in Idaho)
Certified Relocation Professional (CRP) (one of 4 in Idaho)
Accredited Buyer Representative (ABR) (#70 of 54,000 USA)
35+ years  - Representing Clients - not Sales -
43 Degrees North Real Estate <> <>
Direct Cell 208-863-3093
Toll Free 800-359-0855
Fax 208-338-1010

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