Tuesday, November 16, 2021 / by Global Marketing
When $67 Becomes Over $44,000
If you are interested in homes and real estate, you have to read this!
STOP WAITING - IT IS COSTING YOU SERIOUS MONEY!!!
As we write this post (November 2021) a lot of banks are writing mortgages with an interest rate at/around the 3.1% mark. Some are a little higher, some are a little lower - just keep this in mind.
And as we write this, you can bet that banks are going to be raising the 3.1% interest rate soon. Nobody knows when or by how much.
(We are not going to review all the reasons why banks are increasing their interest rates, that’s not something we can help)
This is incredibly important to each and every one of us in this community.
You’re probably asking, why are we - a real estate team - writing about mortgage interest rates? We’re not a bank and we don’t and can’t control the % a bank uses when they provide a mortgage.
We are writing to you - the readers, our friends, our family, and clients - who are waiting for the housing market to change.
We’ve got countless buyer clients wanting to buy homes and property and some have said something like, “I’ll just wait for prices to come back down a little…”
Nothing could cost you more money.
FIRST - Let’s all realize that home prices and property prices are not coming back down.
- The avg price of a home sold in Oct 2021 was 14.5% higher in Oct 2022. That impacts the home sale price way, way more than the mortgage interest rate. With prices increasing, the home price tomorrow will be higher than today - so speed matters in savings. The sooner you buy, the less you pay.
SECOND - Even if prices do come back down, the interest rate is about to start going up.
- So that house in the neighborhood you like - you won’t be able to afford it in the future. If the house price decreases 5% - and the interest rate goes up just 0.5% - you pay almost $13,000 more over the lifetime of the mortgage.
THIRD - There is not an inventory problem in the Tuscaloosa metro area.
- You’re probably saying, “But there are fewer houses on the market in Tuscaloosa and Northport than ever!” And you’d be partially right, because in this instant there are not a lot of houses on the market compared to previous years.
But what you’re missing is the speed with which houses have cycled through the market here.
From Jan-Sept, 2021 there were more homes sold than in any other year. That’s 9 months on the calendar smashing the totals from any previous full calendar year.
Homes hit the market and sold faster than ever, creating an illusion we had an inventory problem in 2021. The reality is - there has been a surge in homes selling and a bigger surge in buyers - so the moment a home hit the market the demand for the property has been higher than ever.
All of this is to say - if you saw the house you wanted in 2021 - you had to be ready to pull the trigger on a deal and get moving. There isn’t time to shop or wait or wonder - the power has been (and mostly still is) with the sellers in our market. This is not projected to change anytime soon either.
If you have thought about buying/selling and wondered what waiting might do - this is for you:
Let’s say your budget each month is $1,100/mo for rent or mortgage...
If you get a 30-year mortgage on $245,000 with a 3.1% interest rate, your monthly payment is about $1,046. Sounds pretty good, right?
But you hope prices will come back down, how’s that work out…?
You cross your fingers, hope to get lucky and your prayers answered, and sure enough that $245,000 house comes down 5% to $232,750. But the interest rate goes up to 3.6% - making your monthly payment $1,056. This is only $10 more per mo, not bad at all, you got the house for a lower price but you’re paying more in interest.
Maybe the price will stay the same, or you can find something else similar for the same price soon, how’s that work out too…?
If the price stays the same $245,000 - but the interest rate goes up to 3.6% - your payment is $1,113. Doesn’t sound too bad, you’re still right at the monthly payment amount you want, it’s only $67 higher than the 3.1% payment.
Except over the life of that mortgage you’re going to pay $24,368 MORE in interest. The power of a higher interest rate can make or break you because that increase of just $67 per mo adds up to $24,368 over the lifetime of the mortgage!
Ask yourself 2 questions:
Are home prices going up or down?
And what are interest rates going to do in the future? Hold on to your hats...
What if the price goes up that 5% AND interest rates increase too?
That $245,000 is now $257,250 and if the interest rate goes to 3.6%, your payment is $1,169! What’s scarier is just how much more interest you pay - that $12,250 higher sale price from the 5% increase - it costs you another $7,800 in interest too! Add all these increases together (higher cost of the home + higher interest rate) and you end up paying over $44,000 MORE for the house in this scenario!!!
Ask yourself again - what are home prices doing and what are interest rates going to do?
Can you afford $44,000 more when buying a $245,000 home?
If not, then now is the time to buy - before prices go up anymore, before interest rates go up too...
These are the conversations we’re having with our clients and their lenders. We’ll help you navigate the dizzying $ figures and %s. It can be so overwhelming and scary - it’s these conversations where we help bring clarity and peace of mind to you. We help you understand all the details so you are perfectly settled and comfortable.
And if you’re one of the folks who have wondered what the future prices and payments and costs look like, we hope this helps.
If you still have some questions, our amazing team is here to help you in any way possible. We find joy in bringing clarity to your concerns and worries. You can trust that we’ll be your advocate, work hard for you, join you on the journey, and give you the full force of all of our team.
As the #1 ranked Large Team in Alabama, we have the resources and experience to make sure any question you have is answered, any worry you have is solved. We absolutely love our clients and we love helping people and families.
You can trust Global Homes Group to provide you with the advice, guidance, and confidence you need in a real estate partner.
Call our office to speak with a caring agent: 205-861-0555
Visit us online: www.MyTuscaloosaHomeSearch.com