By Bernice Ross
national speaker and CEO of Realestatecoach.com and author
Presented By

Sue Martin
Coldwell Banker Myers-Gallagher
361-758-7534

In April of 1973, mortgage rates were about the same as they are today. Since that time, we have only had mortgage rates this low during 2001 and 2002, the height of the seller's markets where there was very little inventory. In the last two major buyer's markets, one in the early 1980s and the other in the early 1990s, the rates were much higher. When I started in the business in 1978, interest rates were at 9.75 percent, en route to 18 to 21 percent in 1980. In the early 1990s, the rates were hovering in the 11 to 12 percent range. Thus, today's buyer's market, with exceptionally low mortgage rates plus a substantial supply of inventory, is the best time in decades to purchase a home, a second home or investment property.
As of April 4, 2008, the average rate for a 30-year, fixed-rate mortgage is 5.87 percent, down from 6.13 percent just a week ago. Last year at this time, the average interest rate was 6.16 percent. The housing market has already seen an up turn in sales and with these lower interest rates the supply of houses for sale could be diminished rapidly. If we follow the supply and demand principle, when that happens, the price of homes usually goes up. Waiting to buy could lead to a loss of money or wealth for the home purchaser.
First-time buyers, take a look at the cost of waiting to purchase your first home. There are several different ways that first time buyers lose money by waiting to purchase. The first is loss of tax deductions. In most cases, people who lack a mortgage pay more federal income taxes than those who qualify for a mortgage deduction. Let’s use a mortgage calculator to illustrate this point. For example, assume that a potential home buyer is currently paying $1,500 per month on a rental. If the buyer purchases a $300,000 property with $30,000 down and a fixed-rate 30-year mortgage of $270,000 at 6.25 percent, the buyer actually nets $24,262 more, assuming that appreciation keeps pace with inflation, the buyer owns the property for eight years, and is in the 28 percent bracket.
Another way renters lose money is through wealth accumulation, generally in the form of creating equity by paying down the loan and through appreciation. According to the Federal Reserve, the average homeowner between 1995 and 2004 had a net worth of $184,400, of which approximately $60,000 was due to home ownership appreciation. To account for the difference of $60,000 of wealth accumulation, a $200,000 house would have to decline by 30 percent. Thus, each year a buyer waits to purchase a median-priced home, they lose $6,000 in potential wealth accumulation.
An additional way that renters lose money is through increased interest rates. For example, on a $200,000 mortgage, assume that interest rates increase from six to seven percent. By waiting, the buyer's payments increase by $1,578 each year causing a total loss (in payments and wealth accumulation) of $7,578. If interest rates increase from six to eight percent on that same loan, they will pay an extra $3,221 per year resulting in a total loss of $9,221.
Consumers who want to take advantage of the lower interest rates need also to be aware of local market conditions and comparable sale prices to have a clear picture of a home's value. Realtors understanding of local markets, coupled with negotiating expertise and transaction experience, are invaluable to buyers and sellers in today's market.
For more information on buying your home, I invite you to talk to your local Realtor at Coldwell Banker Myers-Gallagher. Call 361-758-7534, email info@texascoastproperty.com