Why Should You Buy Now?

WA!! The same house cost, for the life of loan 30 years, about $147,456 more today compared to the last July purchase, an increase of 49.15%, almost 50%, the initial purchase price.

Remember those Buyers days, last six years up to the end of last year, where Buyers had all the power of negotiations, low offer and record low interest rate. In addition to that, Buyers almost all the time were getting some sellers concessions at closing and some allowances in lieu of repairs based on the inspection and other professional reports.  With all these advantages, still many qualified potential Buyers, were not purchasing their dream homes. When I asked, their reply was that they are not certain about the future of housing, economy and they were hoping interest rate goes more down. No matter how much we emphasized that interest rate around 3% would not last forever nor even for a long time and they should take advantage of that great market and act quickly, still they hesitated to act and did not buy.

After about six years of housing collapsed, the market changed from Buyer’s market to Seller’s market.

Now in today’s Seller market, where there is a shortage of listings and as soon as a house comes to the market there are several offers by next day with full price or higher, Sellers ask for much higher price and don’t negotiate or compromise. There are almost no Seller’s concessions at closing or allowances in lieu of repairs based on the inspection report. The interest rate in the last couple of months has raised more than 1%. Based on many national and state-wide studies, during the past year, home prices increased in 92 of the country's 100 largest metropolitan areas.

In Dallas Fort Worth Metropolitan area, for the month of June 2013, many of the houses were sold with double-digit percentages higher than a year before (June 2012).

Specifically, for the City of Plano part of the Collin County Texas where I live, we have the following Sales report from the North Texas Real Estate Information Systems (NTREIS) MLS for the Month of June 2013:

Sold Data for City of Plano. Texas for the month of June 2013

Average Sale Price Increased:
As you see the Average Sale Price and Median Sale Price for this city has increased 17% compared to the Average Sale Price and Median Sale Price from exactly one year ago in the same month. Many other Cities gained more than 17%.

Interest Rate Increased:
Now let’s talk about the interest rate: In last two months or so the interest rate has suddenly gone up more than a 1% (April 2013 3.54% vs. July 22^nd 2013 4.55%). (Ref. http://www.mortgagenewsdaily.com/mortgage_rates/ )

The 30-year fixed interest rates for the month of July 2012 and July 24th 2013 were 3.55% and 4.49% respectively. This is an increase of 0.94% in Interest rate, Almost 1%

Seller Concession and Allowances Decreased (or Eliminated):

Seller Concessions: Based on my personal experiences in my area, Seller typically used to agree to pay $3000-$5000 at closing cost. This was about 1.5%-2.5% of the sale price. Let’s use 2%

Seller Allowances: Again based on my personal experiences in my area, Seller typically used to agree to pay $1000-$3000 at closing cost in lieu of requested repairs, Home Warrantee, etc. This was about 1.0%-2.5% of the sale price. Let’s use 2%

Loss Calculation for Buyers:

Disclaimer: This calculation assumes conventional loan with no PMI, upfront fee, HOA, other closing costs. In the case of FHA the MIP and MIP Upfront fee have been increased 10 base-point compared to the last year fees and also MIP fee now must be paid for the entire life of the loan (30 years) vs. about 11 years from last year. Also, no closing cost calculation is performed.

If a Buyer had purchased a house in June of 2012, with a purchase price of $300,000, loan amount of $270,000 (LTV=90%) and 30-year fixed Interest rate of 3.55%, his/her payment would have been $ 1219.97 per month. His/her down payment would have been $300,000 -$270,000 loan - $6,000 (average Seller Concession and Seller allowances for repairs, HW, etc.) -> Down payment =$24,000

Total Cost = 360 * $1,219.97+$24,000 = $463,190

Today, the same house, would sell for 17% more ($351,000), loan amount of $315,900 (LTV=90%) and 30-year fixed Interest rate of 4.49%, his/her payment would have been $ 1,598.74 per month. His/her down payment would have been $351,000 -$315,900 loan - $0,000 No Seller Concession and Seller allowances for repairs, HW, etc. -> Down payment =$35,100

Total Cost = 360 * $1,598.74+$35,100 = $610,646

Conclusion:

Sad Fact: The Buyer who did not buy his/her dream house at $300,000 last year in June 2012, now he/she has to pay about $147,456 more (in 30 years) to own the same house that initially you could purchase for $300,000. What a loss! 

Happy Fact: The economy is improving, the interest rate rising, the home prices jumping, therefore, DO NOT wait until next year to purchase your dream home. Otherwise, my report and analysis next year, most probably, will show another big loss compare to this year and month loss.
If you are in the market and qualified, buy your dream home now.

Each 1% increase in the interest rate, will reduce the Buyer’s affordability more than 11.22%. To see the effect of 1/8%, ¼%, 3/8%, ½%, 5/8%, ¾%, 7/8% and 1% increase in the interest rate vs. Buyer’s affordability, please see my other blog at:

http://activerain.com/blogsview/3701135/1-increase-in-interest-rate-will-decrease-your-buying-power-by-11-22-                     

OR visit http://www.texasfivestarrealty.com/Increase_1Percentage_Interest_Rate.asp