If you have been thinking about selling your home, your timing is impeccable. But if you’re one of the many people who have been timing the market, trying to make that perfect plunge at the perfect moment, then I’m sure you have figured out by now that you missed the boat. The ship left port eight months ago, and whether you’re a buyer for a condo or house or income property, the price window train has left the station.
All is not lost, though. You still can ride the interest rate train to a more affordable property, but even that train is slowly leaving the station. The Wall Street Journal predicts that interest rates on long term home mortgages will rise to 5.5% by the end of the year from their current 4.0% levels. Do you realize what that means in terms of economics? A $750,000 loan amortized over 360 months will cost you $3,581/month at 4.0% interest, or it will rise to $4,258/month at 5.5% interest. That’s another $677/month, each and every month. Just for waiting around and timing the market.
Look at it a different way. If $3,581/month is your budget for a home, by the end of the year if rates actually are 5.5%, you will only be able to afford a $630,750 loan, thus reducing your buying power by $120,000. That’s a 16% reduction in fire power, and broadens further in West L.A. where prices are moving in the opposite direction at the rate of approximately 15%/year.
To make matters worse, Andrew Khouri of the L.A. Times writes, “California home sales plunged to a six-year low in December, while home prices rose, indicating a meager supply of homes on the market.” NAR reports that home inventory is at a 15 year low, which further translates to a poor choice of inventory for Buyers, destined to remain at this level for the next two quarters, all the while putting upward pressure on the price of homes, and the Feds are comfortable with rising home mortgage rates as long as the hyperinflation forces are kept in check.
My point is very simple; don’t allow the interest rate to degrade the home you want. The higher the rate, the less of a home you can afford. If you’re going to do this, do it now.
If you have any questions about buying or selling in this market give us a call. And as always, if you or someone you know is interested in selling their home, consider sending them our way. We appreciate your referrals.
-Lynn and Mark