Monday, June 25, 2007

Home Buyers - Declining Prices vs. Higher Interest Rates?

Many times I get asked, especially in todays market, what affects does declining home prices really have on the market vs. higher interest rates? There are number of differences but the most obvious one that new home buyers need to look at doesn't really have anything to do with the price reduction rather the interest rate.

I find many home buyers are making the assumption that because the pricing in some areas is going down that their payments or the amount of house they can buy will change dramatically. However one thing that is not taken into consideration is the current interest rate. So what are buyers doing waiting.....and waiting and waiting.....for the huge price drop in the market.
While missing the fact that interest rates are going up. Though interest rates are still at historic lows, a radical federal reduction is not antcipated in the near future which tends to lead to the idea that rates will continue on an upward trend. Now my crystal ball may be a little foggy but even if we take the most recent up tick in interest rates, the scenerio between declining home prices vs. higher interest rates is still important to look at.
I thought this quick little illustration would help home buyers realize why NOW is a great time to buy in Saddleback Valley.

Scenerio A: Todays Price = $650,000
20% down payment = $130,000
Total Loan amount = $520,000
Interest rate (6.25APR) = 6%*
Monthly Payment = $3,117.66

Scenerio B: Future Reduced Price = $600,000
20% Down Payment = $120,000
Total Loan Amount = $480,000
Interest rate (APR 7.25) = 7%*
Monthly Payment = $3,193,45
Total Price Difference between A & B - B = $75.79 per month MORE

Wow, that is a $50,000 price drop with an increase in your mortgage payment!

There is a third scenerio that also needs to be looked at here in South Orange County and that is in many neighborhoods, though the number of home sales is down, pricing is steady and in some instances increasing. So when you see a $50,000 price reduction and the sold comparbles support higher you'll know this is a good deal. In addition, let's not forget with the lower interest rates, increase in inventory and the fact that sellers are ready to negotiate all lead to it being a great time to buy a home.

As a professional Realtor(R) I recommend to buyers that you meet with at least three lenders who will work closely with you and your Realtor to ensure your entire needs are being looked including the timing of when you want to purchase your home. So as the market changes you the buyer understand how it impacts you and you have two professionals on your side ensuring your objectives are met.

There are some great buys available in today's real estate market, should you like to review your options or search properties direclty please do not hesitate to contact Kelly.

Kelly Turbeville is one of South Orange County premier Realtors® focusing in the Saddleback Valley and the communities of Lake Forest, Portola Hills, Foothill Ranch, Trabuco Canyon, Mission Viejo and Rancho Santa Margarita. Whether she's helping a first time buyer accomplish the goal of homeownership, or coaching a homeowner on how to use their equity to step up into a nice home or use it to buy an investment property or finding exclusive properties for the high end consumer. Kelly is committed to making it happen. So if you're considering selling or buying a home in Saddleback Valley, call Kelly to schedule a free consultation. Whatever your dream, with Kelly at your side, It's Possible!

*(note: the above scenerio is only intended as a guideline. There are many variables in determining a consumers qualifications and how that affects an interest rate and loan program. The above rates were based on a 30year fixed rate term)

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