While there is much talk about the state of the economy and the causes by which we are experiencing the economic challenges we are in, there is no question that interest rates are dominating the news. As well they should be. Since 1971 we have not seen rates as low as they are now (mid 4’s). The effects of low interest rates on the real estate market are tremendous. Among these are…..Continued
The Ability to Purchase More Home for Less Money
his seems like a no brainer, and IT IS. For example consider a family wanting to purchase a home that they might live in for ten years. They know that their family will be growing and would like to purchase a home that will allow for that to happen. They were pre-qualified a year ago when rates were in the upper 5’s and were able to qualify for a mortgage of $200,000. This combined with a minimum down payment meant a sales price of $207,200. Their PI payment would have been $1,167.15, at 5.75%.
Now one year later with rates near 4.5%; assuming the same monthly PI payment they would be able to qualify for a $230,350 loan. For this family that means that they will probably be able to purchase a home that will provide for their long term needs without needing to move as their family grows. A $30,000 difference in sales price will provide an extra bedroom and a much needed basement. LOW INTERST RATES ARE GOOD.
The Tendency for Sales Prices to Go Up
You mean that there are actually people out there that would raise their prices as interest rates fall? YOU BET! Affordability is one of the primary drivers in price points. So as interests rates fall it allows for prices to increase without resulting in a higher monthly payment for the buyer. They can still qualify for the same monthly payment, but they pay more for a home than they might if rates were higher. In the case of the family hoping to purchase a home that they can grow into while rates are at an all time low, if not prepared they will see the benefits of the low rate being lost to increasing prices, and their hope for an additional bedroom and a basement will become a thing of the past. LOW RATES LEAD TO INCREASING PRICES.
Inventory Levels Are Reduced So Prices Go Up
We are all aware of the Law of Supply and Demand, but how that plays itself out in real estate may not be so easy to see. For example, two years ago we reached an all time of 60,000 active listings in the metro Atlanta area. As of the end of this October we had 30,000 active listings in the metro Atlanta area. This decrease is a result in part to the artificially low rates we have. Additionally as inventory is being reduced we are seeing the bottom level of pricing increase. This would include the 30-40% of homes that currently make up the market which are in some stage of foreclosure. So while the declining prices of non-foreclosures may have slowed, the prices for foreclosure related properties are now on the rise, resulting in a diminishing opportunity to benefit from the historically low prices. So in the case of the family hoping to afford more home now they are faced with paying more and getting less due to the effects of low rates and reduced inventories. LOW RATES REDUCE INVENTORIES – WHICH LEADS TO HIGHER PRICES.
As the writer considers the last 29 years from a real estate perspective, he has not seen anything like the opportunities that are currently available. So, if you are at a place, WHERE YOU CAN make a move, maybe YOU SHOULD, because these opportunities may not be around forever.
Van Purser is a licensed real estate broker in Georgia. Since1981 he has successfully purchased and renovated over 400 homes. His expertise is in the area of foreclosures, rehabs and fixer uppers. Additionally, he has represented hundreds of clients over the years as a broker with Metro Brokers, RE/Max and now with his own firm. He and his wife, Jeanne, who is also a broker, have been married since 1977. For follow up on this article you may email Van at VanPurser@VanPurser.com