This morning, Freddie Mac released the results of it’s Primary Mortgage Market Survey revealing that the interest rate on a 30-year fixed rate mortgage averaged 4.01 percent, which is an all-time record low and the interest rate on a 15-year fixed rate mortgage averaged 3.28 percent, also an all-time record low!
Look at what an impact interest rates have:
To put in perspective just how much interest rates affect your buying power and the cost of a home, let’s look at a few examples of payment amounts on a $200,000 30-year fixed rate mortgage (principal and interest):
- $1,866/month back in 1979 when I first entered the real estate business (I know I’m dating myself) and interest rates were 11.2 percent.
- $1,066/month during the height of the boom in 2006 when interest rates were 6.4 percent.
- $ 668/month TODAY at the record low rate of 4.01 percent.
Throw reduced home prices into the mix as well and see how good it gets:
In addition to the falling interest rates, home prices have fallen significantly as well, making owning a home more affordable than ever. According to the Case-Shiller home price index, home prices have dropped 30.7 percent from 2006 until today, so that means today, to buy the same house as our example above that required a $200,000 loan in 2006 we would be buying it for 30.7 percent less so only need a loan of $138,600 to buy the same house which, coupled with the reduced interest rates, see what a difference it makes:
- Cost in 2006 $1,066/month
- Cost today $ 372/month
Sure, the price declines are national, what does this look like for St. Louis?
Ok, since the Case-Shiller Index does not take St. Louis into account, and our market has done better than many metros across the country, let’s pull in some St. Louis data:
St. Louis City & County –
- 2006 Median home price – $ 145,000
- 2011 Median home price – $119,000
- Decline of 17.9% – so if we apply this to my scenario above, a borrower would need to borrow $164,200 today to buy the same home as a $200,000 loan would have gotten him or her in 2006, so the savings is not as large as the U.S. example above, but still pretty good:
- Cost in 2006 $1,066/month
- Cost today $ 497/month
- Savings of 53 percent!
St. Charles County –
- 2006 Median home price – $ 195,240
- 2011 Median home price – $155,000
- Decline of 20.6% – so if we apply this to my scenario above, a borrower would need to borrow $158,800 today to buy the same home as a $200,000 loan would have gotten him or her in 2006, so the savings is not as large as the U.S. example above, but still pretty good:
- Cost in 2006 $1,066/month
- Cost today $ 471/month
- Savings of 56 percent!
So someone in St. Louis can buy a home today for roughly 50 percent less (in terms of monthly cost) than what the same home would have cost them 5 years ago. Even though I tend to me a little negative on the housing market (because I’m trying to be realistic) I have to say I think the TIME IS NOW to buy a home. Granted, it’s easier for folks that don’t already own a home which, with home ownership truly being cheaper than rent I don’t understand how someone that is in a position to be able to buy a home would choose to rent today, but even for those people that currently own a home we’re going to be hard pressed to see a time when it will be more affordable than it is now to make a move up. Yeah, you may have to take your lumps on your house, but assuming you are moving up, your gain on your new home should out-weigh the pain on your existing home.
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