I remember when I bought my first home in the mid 1980’s. I was so excited, the interest rate was at the bottom of the double digits, considering what the early 80’s had to offer with rates in the high teens. I had friends who purchased in Brooklyn, NY in the early 80’s and were paying almost 17% for their mortgage. The interest rate for my first home was just above 10%. Granted the home prices were significantly less, but the monthly payments were high, considering the lower prices of the times.
Fast forward to 2010, with interest rates the lowest in 30 years and prices at 2005 levels.
What’s the difference in monthly payments with the more recent interest rates we’ve seen?
If you decide to purchase a $400,000 home, this is the difference in principle and interest payments over the last couple of years.
July 2008 – 5.75% – $2,334
July 2009 – 5.25% – $2,209
Jan 2010 – 5.125%- $2,178
May 2010 – 5.0% – $2,147
July 2010 – 4.50% – $2,027
Seattle-eastside home values have dropped significantly since the peak in the real estate market in the summer of 2007 and rates have also dropped as well. If you were to purchase a $400,000 home now, the payment would be approximately $300 less than two years ago, plus the home prices are also lower. In King County, WA, the choices are terrific because the number of homes for sale is just below the high so far for the year. Right now, in King County, there are 13,921 homes for sale.
So is it the right time to buy a home? You decide.
Should you buy a home now on Seattle’s eastside now or wait until after the tax credit expires at the end of April?
People were talking on the Wall Street Journal site and on Zillow about this very issue. Today people don’t just ask, “How’s the real estate market?” They ask, “What do you think will happen to the real estate market after the tax credit?”
Here are some of the things people are wondering:
- Do I buy now?
- Do I wait?
- Will I get a better deal now or if I wait?
- Is it worth passing on the tax credit and waiting to see if prices come down after April 30th?
- Is it better to buy now because there is a healthy number of homes for sale and good interest rates?
- Will there be more homes to choose from later?
- Will interest rates go up and cancel out any possible decline in prices?
I got my crystal ball out as did many others. Money Magazine made a strong case for buying now. Warren Buffett, on the other hand, thought the real estate market would pick up in 2011. Luke Mullins of US News and World Report presented the positive aspects of home ownership, even in today’s real estate market. Truthfully, no one knows what will happen and we can only speculate about what may happen with prices, the number of homes on the market and interest rates. But all these variables should be considered when making a decision about whether to purchase a home now or later.
I believe there are good deals on a home now and will be after the tax credit, but it’s on a case by case basis. Here’s why I say this:
$6500-8000 home buyer tax credit available for most buyers.
Historically low interest rates.
Good selection of homes, many with very realistic home sellers and prices.
Having the tax credit of $6500-8000 and terrific interest rates, increases buying power. Typically, your loan payment is amortized over 15 or 30 years, a lower interest rate means more dollars per month in your pocket.
Will prices drop after the tax credit goes away on April 30th? No one really knows. There may be more homes on the market, which we typically see in the summer months in the Seattle area. If so, the law of supply and demand will kick in. More homes + less demand= lower prices. But we really don’t know if this will happen. We don’t know if there will be less demand. We can only guess. We can only gamble on what may be.
However, there’s a good chance interest rates will go up, which means purchasing power will go down. If rates go up 1%, then purchasing power goes down by about 10%. This means if you could afford a home for $330,000, if rates do go up by 1%, you would then qualify for a home at $300,000.
Buying a home will, obviously, be less expensive if prices drop (but we don’t know if they will), and mortgage rates could also be a higher ( again, just a guess, but looking pretty certain), which could more than cancel out any savings in the price of the home. Remember, I’m not just talking about your initial investment, I’m talking about spreading the total cost out over the time you own your home.
The location factor:
Real estate is hyperlocal. There is no one size fits all real estate locales, individual buyers or individual sellers. Some areas of the Seattle- eastside real estate market will remain stronger than others. Within each city on the Eastside, Bellevue, Redmond, Kirkland, it will vary. The East of Market neighborhood in Kirkland may be vastly different than Kirkland’s Rose Hill real estate market. We see that today with a difference in real estate sales performance in different areas on Seattle’s eastside. So no one should make a “one size fits all” about the real estate market. It will depend on how hot the area is, how many homes are on the market, and how hot the house may be. ( The Queen Anne neighborhood in Seattle seems to remain hot through most real estate markets, as an example.)
Some neighborhoods will be full of homes for sale and the homes in these areas will need to be priced more competitively. Other areas will have fewer homes to buy. These areas will have stiff competition among the sellers to grab the buyers. Buyers will be looking harder at the overall value each home brings them.
The home factor:
In every real estate market, you’ll find fabulous homes. These homes will be perfect, priced right, and terrific values. Homes that shine will be the ones to sell in any market.
The emotional factor…
For most people, it’s a huge personal decision when to buy and what home to buy. If you find a great house and are able to get it for a reasonable price for the real estate market at the time, it may make sense to you to buy. There are the financial aspects of buying a home and the emotional aspects. You might find the home you can’t live without and it’ll be worth it to you to buy now rather later. You may not find a home now and miss using the home buyer tax credit, but you may not want to buy a home now just to get the tax credit.
There are going to be great homes now and in the future. There are also going to be great deals now and in the future. The difference in today’s market is you’re dealing with a known quantity. You have to decide what works for you.
What do you think will happen with the Seattle-eastside real estate market later this year?
Who knows where the time goes? (“Who Knows Where the Time Goes”- written by Sandy Denny, but made famous by Judy Collins) Sometimes it seems like the past has gone in the blink of an eye. Ironically, it feels exactly the opposite when we think of the future. It’s human nature to think there’s all the time in the world, whereas the past seemed to happen in the blink of an eye.
We have the real estate trifecta here in the Seattle area right now and it could be gone in the blink of an eye. If you’re someone whose thinking of buying or selling, if you wait too long to act, the trifecta could be a thing of the past. The trifecta is a boon for both buyers and sellers.
So what’s today’s real estate trifecta?
- The home buyer tax credit.
Attention home shoppers! The April 30th deadline for home buyers to find a home, be in contract, and receive the $6500 tax credit is coming fast, and it’s coming faster than you think. There’s less than 100 days to have an accepted offer on a home and obtain the home buyer tax credit.
Remember, the $8000 tax credit still exists for first time home buyers, but many people don’t realize almost all home buyers are eligible for a $6500 tax credit. This is an important deadline for home buyers and home sellers, not just the buyers. Home buyers who are serious are out shopping and buying homes.
- Low interest rates.
The low interest rates, which are low, won’t be here forever. Rates for a 30 year fixed mortgage dropped below 5% last week.
- Good number of homes for sale.
There’s a lower number of homes on the market in King County, but there’s still a healthy amount of good homes to choose from. (Yes, home buyers, there’s a number of great houses out there.) It’s a more evenly balanced real estate market between buyers and sellers, which means some homes will sell right away if they are priced right and stand out from the competition and others will take longer to sell and will sell with more negotiation in price.
So home buyers and home sellers get out there now and take advantage of the real estate trifecta. April 30th is not far away.
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