Recently, I have had a lot of friends ask me if they should
stay in their apartment or buy a new home.
Here’s my 2 cents:
With property prices expected to increase modestly in 2014,
the push to buy for some would be homeowners has waned. Interest rates are still very very low. In
fact, my parents had an 11% interest rate on their investment property [And
that was the “Good” rate]. We are in a
scenario where it is a matter of “when” and not “if” rates will increase. Mortgage rates have been low due to the Federal
Reserve pouring money into the financial system to spur the economy. When a family refinances their loan to a
lower rate, the end result is reduced payments and more money in their pocket. In our consumer based economy, the money doesn’t
stay there too long. Extra funds are
used to buy clothes, dinners, cars and other items.
When the rates increase, it has the opposite effect on
spending because housing is a basic human need.
Let’s take a quick look at how the payment would change if
the rates increased from 4% to 5%.
Loan
Amount
|
Interest
Rate
|
Monthly
Payment
|
$400,000
|
4%
|
$1,909
|
$400,000
|
5%
|
$2,147
|
The increase in payment is $238 per month and becomes even
more pronounced as the property price increases. You may have a great price on
your rent right now, but you are neither building equity nor benefiting from
potential price appreciation. If
homeownership is something that you are committed to, it may be a great time to
explore your options.
Although last year’s story was that there was a lack of
inventory, Orange County inventory is up 2% (140 homes to a total of 5,403).
The bottom line is that homeownership isn’t right for
everybody, but for those committed to taking advantage of the current market
could come out on top.
Wishing You Wealth!
Alex
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