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Bob Kienast's Blog

Buying and Sellling a Home in Parma, Parma Hts and Seven Hills, Ohio

By Bob Kienast | Agent in 44133

What is with these interest rates?

This past week, 30 year fixed rates dropped below 4% for the first time in over 50 years. 
For example, this means that a $150,000 mortgage taken over 30 years would be about $715 a month.  Despite the historically low rates, existing home sales are still stagnant and there seem to be a lot of potential buyers staying on the sidelines.

The "Move Up" buyer seems to be most affected.  Statistically speaking, a family considers a move every 5-7 years so this is the home owner who bought during the boom in 2005, 2006 and would normally be ready to move up from their starter home.  Many of these home owners are upside down on their mortgage ( owe more than the home's value ) and are unable to take advantage of the combination of price and interest that should make this market so attractive.

If (and that's a big IF ) you are able to make a move now it is an EXCELLENT time to do so.  Consider the following.

  • Yes, home values are down.  But this also means that your BUYING power has increased relative to prices and interest rates.  That same $150,000 mortgage would have cost you almost $900 back in October of 2005.
  • Although the drop in home value will certainly affect the price you can expect to get for your current home, it will also obviously affect the purchase price of your new home. If we consider only a 10% reduction in home value since 2005, ( so that I can do the calculations without a calculator )  Your $120,000 starter home may only be valued at $108,000.  OUCH !! to be sure.  But then look at the other end.  Again speaking statistically, buyers tend to buy up about 50% on their current value.  So that $180,000 second home is now valued at $162,000 !! 

These are only raw numbers, and everyone's situation is different.  However, if you are in a situation where you are considering a move up purchase, it may be worth looking into.   

PLEASE PLEASE PLEASE..don't venture into a transaction blindly.  Get all your financial information in order, get all your numbers and scenarios up front, Hire an experienced agent to help you with the transactions ( preferably me ), and use a reputable mortgage and title company to put the deals together. ( preferably Howard Hanna mortgage and Barristers Title. )

I hope you have found this information valuable.  Next time we will look into buy vs rent and the 1st time buyer.



 

Comments

By Pat and Steve Pribisko,  Sun Oct 16 2011, 17:06
While I prefer Keller Williams Greater Cleveland West, I agree with most of your comments. I would add that, unless there is a question about potential job loss, this is the time to make a move. If one is a renter, look for a first home. If one owns a first home, look for a move up. This is a great time for a bargain, both in terms of a mortgage loan with a great interest rate and lower priced homes in this current economy.

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