As we round up the fiscal year 2012 and move into 2013, the next 12 months is showing compelling reasons why would-be home buyers are going to be buying more homes. In the beginning of 2012, the consensus was the real estate market was low, even flat in some parts. In summer 2012, purchase business began to grow significantly and as we end the year, home buying opportunities are scarce, creating intense demand in conjunction with other compelling factors.
Home Purchase Facts
- Low home supply creating multiple offers, houses selling for “over-asking” due to intense competition
- Cash investors have advantage in multiple offers scenarios
- Reo/foreclosure properties (bank owned properties) are available in limited quantities
- Short Sales (banks agreeing to short original dollars lent) are more abundant, taking average 4 to 6 months to close
- National unemployment rate continues to fall monthly since November 2012 showing a stronger labor/wage market
- Inflation remains virtually nonexistent
- Federal Reserve Bank has no reason to tighten (raise short-term rates), in fact they are committed to purchasing over $1 trillion in mortgage-backed securities through 2013 promoting a stronger housing sector
Factors That Will Motivate Would-Be Home Buyers To Buy Houses
If you are a first-time home buyer– have good credit, stable job and a down payment? Buying a house means there’s a good chance your mortgage payment will be less than or equal to your rent payment.
Did we mention rents are on the rise? They are, on the end of the spectrum, we have homeowners who’ve lost their homes in short sales or foreclosures who haven’t moved, who still need a place to live, and those people are creating demand for rental properties driving the prices of rents up. Buying a house also meas a tremendous tax advantage for deducting mortgage interest and property taxes.
If you are already a home owner– as prices continue to rise, rates are still favorable. If you don’t purchase a house now, you could end up being priced out of the market for that second home or vacation property in your desired location. As the job market continues to strengthen, prices will continue to rise.
If you plan on purchasing income property–in most cases you can put 20% down and cash flow your investment after expenses. Consider the return on your dollars. If you can achieve an annualized 5% return on your money, secured by real estate, how does that compare to the yields at your financial institution?
The Cost Of Mortgage Money Is Now Lower
Consider the following example using a purchase price of 300,000 with 20% down on a standard 30 year fixed rate conventional mortgage.
| Program | Average 2012 30yr Rate | Current Rates |
| Property Value | $ 300,000 | $ 300,000 |
| Down Payment (%) | 20.0% | 20.0% |
| Interest Rate | 4.25% | 3.63% |
| Down Payment | $ 60,000 | $ 60,000 |
| Base Loan Amount | $ 240,000 | $ 240,000 |
| Loan Amount | $ 240,000 | $ 240,000 |
| Payment (P&I) | $1,181 | $1,095 |
| Net Savings | $ (86) | |
| COST OVER 30 YEARS | ||
| Program Details | A | B |
| Interest Paid | $185,036 | $154,028 |
| Total Cost (P&I) | $ 425,036 | $ 394,028 |
The .625% interest rate translates to an additional $31,008 in interest paid over the life of 360 months. In other words, all other factors aside, a $300,000 house costs less now than it did in 2012 based on interest expense alone. While rates rates are cheaper, if you have to pay an additional $31,008 more in purchase price for the house even with a lower interest rate, that is equivalent to paying less for the house with a higher interest rate, in either scenario the cost is the same.
Home Buying Signs You Are In An Appreciating Real Estate Market
- Days On Market (DOM)- looking at single family residences less days on the market translates to a stronger/rising market
- List Price Vs. Sold Price- if there’s a 10% spread in price up or down, combined with less days on the market, translates to a stable market
- Highest & Best Offers- is an indicator of too many offers on any one house (by process of elimination-listing agent asks all buyers’ agents to submit a second offer for their highest and best offer for final consideration)
If you are thinking about buying a house, need mortgage loan financing? Fill out our online mortgage rate quote for complementary payment and cash needed figures. Let 2013 be the year you get into the real estate market.
