The following is a blog that I posted last night under the title "30% Off Sale On Homes". I can't tell you how happy I was to be watching Fox News this morning and see Lawrence Yun, the Chief Economist for the National Association Of Realtors stating that the latest figures had housing affordability pegged at levels not seen since 1973. Imagine that! The average person buying an average home, with an average interest rate is paying LESS, as a percentage of income, than they would have paid for an average home in 1973! WHY AREN'T WE SEEING THESE HEADLINES IN EVERY SINGLE NEWSPAPER AND ON EVERY NEWSCAST NATIONWIDE?!
A couple days ago the media reported that existing home sales for December had "unexpectedly" increased by 6.5% to an annual rate of 4.74 million units. The South fared even better with a 7.4% increase in sales. And, the number of unsold homes on the market last month fell nearly 12% to 3.7 million homes. At the current sales pace, it would take 9.3 months to sell all the properties. This is down from 11.2 months in November.
Can we take a moment to look at the current numbers since nobody seems to be pointing out the obvious? The median sales price has plunged 15.3% in just one year. The average 30 year fixed rate has dropped from 6.58% in August to 5.14% last week. A drop of 1.44% and an additional 15% of buying power. So, the average buyer looking at a $450,000 home last year, would have been looking at a $2294.42 P & I payment had they put down 20% and locked in at the average 30 year rate of 6.58%. TODAY, the same home is selling for $382,500 and the P & I payment is $1668.96, assuming 20% down and a 5.14% interest rate. A 27.2% DECREASE FOR A MONTHLY PAYMENT!
Are you giving this information to your customers that are sitting on the fence? Don't be surprised if we see more "unexpected" numbers over the next six months. Interest rates aren't going to stay this low. The smart buyers understand that the price of a home is only one factor that determines the total cost. If the interest rates go back up to 6.58% and real estate prices drop another 15%, their monthly housing cost is going to remain the same.
The big difference will be the available inventory. Last month, inventory dropped 12%. The doomsayers are saying that the next wave of adjustable rate mortgage foreclosures are coming and inventories will increase again. Interesting theory, but I think that they are overstating the problems with adjustable rate mortgages. While some programs like the option ARM are problematic, the popular 1, 3, & 5 year adjustable rate mortgages pose much less of a risk. I have a one year adjustable that I've had for 3 years. The first year it was lower than the 30 year fixed rate. The second year it dropped. Last year it dropped again. Today, I received my new adjusted rate. My rate fell from 5.75% to 4%. My monthly payment dropped 18%! This is IN ADDITION to the 11% decrease in my property taxes this year. Is there anybody talking about these mortgages and variables?
The smart money is already starting to search. Our global listing traffic is up 240% since October. With 4 days left in January, we've already exceeded our page views from December. And January is typically one of the slower months of the year. As long as interest rates stay low, I think we'll start to see significant inventory reduction and many more "unexpected" results. Here's to a great 2009!
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