The power of interest rates on purchasing
When looking at today’s market concerning interest rates the best perspective is look at the economy in the recent past. Since the economic events of 2008 the Federal Reserve has committed to driving interest rates down to spur sales in the housing sector and the economy in general.
In 2007 the interest rate average for the year was 6.34% for a thirty year mortgage, fast forward to 2012 the average for the year was 3.66% or a drop of 42.27%. comparing the median sales over that same period of time the median sales price in Yellowstone county in 2007 was $180,00 fast forward to 2012 and it rose to $197,950 or a 9.97% increase. When you look at the monthly payment including 25% for taxes and insurance, the payment went from $1,397 in 2007 to $1,132 in 2012 meaning it cost 18.96% less to own that median sales price home in 2012 as compared to 2007. The other aspect affected by the interest rates is ownership as compared to renting in 2008, renting the median price for a home was $1000 per month, the median ownership payment was $1,393. Fast forward to today renting will cost $1,095 versus median ownership payment $1,132 per month or only $37 more to own the median sales price in 2012, so far in 2012 that difference has dropped to mere $7 more to own as compared to renting.
As we progress through the next period I do not belie that interest arêtes will stay this low and the more normal difference between ownership and renting will occur.
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