We are in uncertain economic times. Unemployment is high, the housing market remains in crisis, the gulf coast is being devestated, my clients are on the fence about whether to buy, sell, rent, or foreclose. What is the right thing to do right now?
REFINANCE NOW. Interest rates are still at historically low levels. 30 year fixed rates can be had for under 5% APR. A $250,000 mortgage at 6% has a payment of $1498.88. At 4.875%* that same mortgage has a payment of $1323.02. That's a savings of $175.86 every month. If you assume that it will cost one point to refinance, the cost will be recovered by payment savings in just about 14 months. If the house is kept for 7 years, the savings are $12,272 after deducting the cost to refinance.
BUY A HOUSE NOW. As I just mentioned, rates are incredibly low. A buyer has more buying power now than they did a few years ago. The $250,000 house I mentioned before at 6% can now be a $290,000 home at 4.625%, WITH THE SAME PAYMENT. Factor in that many areas have seen 20% or higher price declines in the last few years and a buyer could probably get a home that once sold for $360,000 for the same monthly payment they would have on the $250,000 house just a few years ago. That's a $130,000 improvement in buying power. Prices are at or near the bottom (if you choose to believe that) and sales were up in May from the buyer tax credit program. Foreclosures and short sales still dominate many markets and give buyers opportunities to buy distressed homes. Inventory is still high, allowing buyers more choices and more negotiating power.
SELL NOW. The government's attempts to lower unemployment, prevent foreclosures and stimulate the economy have been largely unsuccessful. The Federal Reserve is concerned with deflation. Housing prices may still be going down especially since the expiration of the tax credit will no longer inflate sales numbers. A family looking to save money or recover from economic hardship can downsize their home by selling their $250,000 home and giving up their $1500/mo plus $450 mo tax bill and renting a smaller home at $1400/mo would save $550. Assuming that prices will not rebound to 2006 levels for 5 years (some estimates predict 10 years), a homeowner could save $33,000 ($550*60 mo) and buy back into the housing market in 5 years at prices that will probably be only slightly higher than they are now. For many people, sellling now may be the right choice.
Every homeowner's situation is different. Many people are still buying homes because of the opportunity that is available to buyers. Many people who are planning to move in the next few years may be considering selling now due to the uncertainty of where home prices will be in the future.
For home buying or selling help in Plainfield, Shorewood, Joliet, Oswego, New Lenox, Mokena, Frankfort, Homer Glen, Orland Park or Tinley Park, Illinois, please click on the home buying or selling link.
Steve Roake is a full time REALTOR with McColly Real Estate. Steve has completed Short Sale and Foreclosure Resource Certification.
*Today's rate quote by Wells Fargo is for a 30 year fixed - 4.625% intereste rate, 4.812% APR.