Good afternoon as we go into the Labor Day weekend I wanted to share a few thoughts with you to help you sell more homes in what is now an excellent time to buy.........
It's been an interesting week. While there is still great turbulence in the market, and Jumbo mortgage (over $417,000) money is still very volatile as is the availability of 100% financing for jumbo loans, the good news is that we see conventional fixed rate money remaining very stable and even slightly improving in interest rate.
What does this mean? Financing is still plentiful and the larger money center banks are good/solid resources. Prosperity Mortgage (backed by Wells Fargo), Bank of America, National City, Chase, Citi, etc can all be considered safe sources for mortgages. Many other mortgage bankers are still okay, but I would suggest some care here.
We continue to hear of loans placed with mortgage broker's occasionally blowing up at the last minute.
So.....I was looking at the current environment:
- Awesome inventory
- Motivated sellers
- Almost record low fixed rates - despite the "liquidity" crunch
A lot of people are working on getting delivering the message that it's a great time to buy Real Estate (i.e. Art Herling on NBC this week). I heard a money fund manager on MSNBC say that his firm was recommending residential real estate now as an investment strategy because we are at or near bottom and the upcoming fed rate cuts will bring the market back, so get in now while you can bargain before the cycle heats up again.
So here is one more basic look to add to what you do anyway to tell a first time buyer to get off the dime and buy right now:
First: Remember that rent rates will inflate over time. In other words, if you assume a 5% inflation average over time, a $2,000 a month rental would cost $2,500+ in five years and $3,260 in just ten years. The argument to rent versus buy starts here. Any assumption based on today's rent payment versus a mortgage has to account with inflating rent values over time compared to a fixed mortgage payment building equity during the same timeframe.
Second: Tax benefit. The US tax system is unique to all others in that it creates this incredible tax shelter which really becomes a great return on investment. For example, if you buy a $450,000 home today and put 10% down, at today's rate of approximately 6.5% the buyer would have paid $127,717 in total interest in just the first 5 years. Because of the tax benefit, this owner would have saved $38,315 in federal taxes (assuming a 30% tax bracket) that he/she otherwise would have paid.
Equity: Even if the home does not appreciate, those monthly payments over five years would pay down the mortgage by $25,875 versus a rent payment that does nothing. If the home appreciates at even a meager 2% per year on average, the home would be worth $497,285 in just five years and $549,539 over a decade - again - at just 2% average per year. Equity gets created by both amortization and appreciation.
So look at this payment table below:
Mortgage payment assumes 6.5% fixed rate, average PMI rate, taxes at 1.25%, insurance. I averaged the deduction and amortization by taking the 60 month total and averaging per month.
SFR valued at $450k/$405k loan (at 90%) | 30 year fixed rate plus PMI | Mortgage payment after Tax and amortization monthly | Rent adjusted for 5% inflation on rent rate |
Yr 1 Payment | $3,290 | $2,083 | $2,000 |
Yr 2 Payment | same | same | $2,100 |
Yr 2 Payment | same | same | $2,205 |
Yr 3 Payment | same | same | $2,315 |
Yr 4 payment | same | same | $2,431 |
Total | $197,400 | $124,980 | $132,612 |
This comparison assumes zero appreciation. None. The story gets far worse for the renter over time as they see their rents rise year after year.
So....why else would someone wait? Oh yeah...this concern about home values. Well, one thing is for certain - perhaps the worst time to buy was the peak of the "seller's market in 2005 - right before prices stalled. Here we are at the peak of the "buyers" market. Now is the best time to find the perfect home with the motivated seller to get the deal of a lifetime and benefit from all the other variables upfront.
So......I know this is redundant to many and perhaps a bit to complex to explain, but the argument is strong that the qualified potential buyer should act now.
Just a thought. Have a safe and happy Labor Day weekend and lets work together to share this strong message and sell more homes. Remember, we sell more than a house, we sell Home Ownership. The cornerstone and anyone's financial future.
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