Thanks to Jake Stanton
for this post today! Jake is GM/COO for Prudential First Realty located in West Des Moines, Iowa.
Tax Credits Are Over, But Rates Are Lower!
Earlier this year, there were a couple of fairly widespread predictions regarding what would happen to the housing market right around April of 2010. First, it was predicted that the Federal Tax Credit would expire on April 30th, and not be extended. This, of course, turned out to be true. Second, it was predicted that when the US Government stopped buying mortgage backed securities in March, interest rates would begin to tick upwards, with some predicting rates in the 6% range. This has turned out to be untrue. In fact, rates have actually moved the opposite direction and have dropped into the upper 4% to 5% range. And, if we do some simple math, we can see that in many cases our buyers have a better purchasing opportunity than when we had the tax credit!
Let's look at a couple of scenarios:
- In April, a homebuyer purchased a $180,000 home with 20% down on a 30-year mortgage at 5.21%, which is about what rates were in April. So, they financed $144,000 and the monthly principal and interest payment was $791.61. Let's assume they qualified for the $8,000 homebuyer tax credit.
- Today, a homebuyer purchases that same $180,000 home with 20% down on a 30-year mortgage, but at a rate of 4.84%. Financing the same $144,000 at this new rate will save the buyer $32/month, or $11,738 over the life of the loan. Sure, it's not money in their pocket at tax time, but it's a much greater dollar amount than the tax credit was able to provide!
Let's look at it another way....
- Today, a homebuyer purchases a house with 20% down on a 30-year mortgage, but at a rate of 4.84%. Keeping the monthly payment at the same $791.61 as the April tax credit buyer used, today's buyer with today's rate will have another $7,732 in purchasing power with no payment increase. And just like the tax credit, improved purchasing power provides an immediate benefit.
And of course, mortgage rate reductions benefit ALL HOME BUYERS, not just first time home buyers. Plus, unlike the Federal Tax Credit, there's no deadline forcing you to make a decision right away. As long as rates stay favorable, your buyers can take the necessary time to find the home they want.
It's a simple, but powerful concept. The opportunity for buyers didn't end when the tax credit expired. In fact, in most cases it has improved.
You can follow Jake Stanton on Twitter @JakeStanton.
photo credit: Dano