Most buyers are payment shoppers…meaning we have to get a loan. But there is a cost of waiting!
Recently, I have heard: I’m waiting until after the election to see what happens before I buy a home.
My question is:
1. What do you think is going to be different after the election?
2. Will you need a place to live if one party is elected and not need a place to live if the other party is elected?
3. Will your job pay you more or less after the election?
4. What will interest rates do? What consideration have you given to possible rate increases?
5. What consideration are you giving to competing with cash and high down payment
buyers/investors in a multiple offer market?
6. Will interest rates go down? At the current rates – future rate reductions, if any, might only be in
tenths or hundredths of a percent. That will have little effect on affordability.
7. Will interest rates go up? A 1% increase in the rate? adds hundreds of dollars in interest per
month to the average loan payment. How will a rate increase impact your affordability?
8. If you are renting now - will you still be renting after the election?
You have to live somewhere. Whether you are an owner or a renter, you are paying a mortgage or giving/getting a return on an investment. It’s just a question of whether it’s your mortgage/investment or your landlords.
Would you say rents have risen over the last 30 years, stayed flat, or decreased? Are rents more likely to increase over the next 30 years, stay flat or decrease?
Do you think there will in inflation in the future?
A home is an investment. The question is whose investment is it? When you own – it’s your investment. When you rent – it’s someone else’s investment.
One way to think about owning compared to renting is to think of a 30 fixed rate loan as a 30 year rent controlled lease and then they give you the house at the end of the term.
Example: If you purchased a home for $400,000, today, and it increases in value at a rate of 2% per year, it will be worth $732,000 in 30 year and your future mortgage payments would be $0(assuming you don’t refinance). If you rent the same home today for $2000 per month and your rent increases at 2% per year – 30 years from now you will be paying $3622 per month, you will have paid a total of $974,222 in rent, you won’t own the home, and you will pay $3694 per month in the 31st year, $3768 per month in the 32nd, etc. Over the next eight years you will pay more in rent than the original purchase price of the home.
If you bought the home with a 3.75% 30 year fixed rate loan – you will pay approximately $670,000 in total principal and interest payments during the life of the loan after which you’ll own a home worth $732,000 free and clear.
Homes are actually as affordable or more affordable today than they were 10, 20, or in some cases - even 30 or more years ago. And I'm not talking about adjusting for inflation. I'm talking about actual dollars.
1980 - the California median price was $101,000 and fixed rates were 13.74% - 30 yr fixed payment = $1176.00
1990 - the California median price was $194,000 and fixed rates were 10.13% - 30 yr fixed payment = $1721.00
2000 - the California median price was $242,000 and fixed rates were 8.05% - 30 yr fixed payment = $1784.00
2010 - the California median price was $300,000 and fixed rates were 4.25% - 30 yr fixed payment = $1476.00
2012 – (August) California median price was $281,000 and fixed rates were 4.0% - 30 yr fixed payment = $1301.00
*for illustration and comparison purposes only
Do you think rents have gone up over the last 20-30 years? Do you think rents will go up in the future? Buying a home with a fixed rate mortgage is like locking in a rent-controlled lease for the next 30 years and getting to keep the house when the lease is over. If you bought the home 30 years ago - the loan would be paid up this year and you would own a $281k house free and clear.
* All figures assume CA median price and interest rates shown on charts available on the CAR website.
Do the math – A median priced home purchased in 1980 for $101,000 would now command 20% to 25% of its original purchase price in annual rent.