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Buyers Links
Information about Bill Groover
What Customers (and other REALTORS®) say
Piney-Z Home Owners Association
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Mortgage Rates Increased 0.375% From Jan. 28 to Feb. 6, 2009 by Bill Groover, PhD, CRS, GRI, CLG, etc. . . . Ask me to show you my rate sheets. On Jan. 28, 2009, assuming you qualified, I could have locked you at 4.625% for a 30 Year Fixed Rate Mortgage. Friday, Feb. 6, 2009, I could have locked you at 5% (5.375% at Ingle Mortgage). That increase was nothing unusual. The unusual thing was that rates were as low as 4.625%! And I’m looking for them to go up before they come down again (see the recent “Daily Rate Lock Advisory”).
From http://www.inglemortgage.com/DailyRateLockAdvisory But just before the 3/8% increase we saw in the last ten days, this same source was predicting rates would drop.
Let’s assume you were going to buy one of my listings at the asking price of $210,000 on Jan. 28, and you had 10% to put down. You would have needed a mortgage for $189,000, your interest rate would have been 4.675% (APR 4.73%), and your principle and interest (P&I) payments would have been $971.72. If I locked you for the same loan on Friday, Feb. 6 at 5% (5.055% APR) payments would now be $1,014.59 or $42.87/month higher. Ouch. (The Bank says: "Thank you.")
Let’s say for a minute that $1,014.59 is all you can budget for monthly P&I. If rates go up just ¼% more, you’ll only be able to borrow $183,734.73 and keep the P&I the same. You’re either going to have to increase that down payment by $5,265.27, or, hope that the price comes down that much. And, by the way, that price drop would represent a 2.51% decrease. Over twelve months, 2.51%/per month would be a 30% annual decrease. Click here for a Spreadsheet into which you may plug in Price, % of Down Payment, and Interest Rate to do your own comparisons. At the “peak of the market” in the Spring of 2006, houses like this one in Piney-Z (under 1800 SqFt) were selling for $148/SqFt that quarter. The average $/SqFt for the last quarter of 2008 was $131 (all sales, including foreclosures). That’s a $17 drop, or 8.5%, over three years.
At this point you’ve got to think I’m lying or crazy. Everybody knows prices have dropped more than that. Actually, the biggest drops have been in Units Sold (10 per quarter to 3) and Asking Price (14%). In the year after the “bubble burst” in the Summer of ’06, Listing $/SqFt increased almost $5 before finally dropping. Click here to download all sales in MLS under 1800 SqFT in Piney-Z for Jan ’06 thru Jan ’09 and see for yourself. Then Click here to see all listings for the same period. Look at the facts for this neighborhood, not the articles in the paper talking about the resort areas. What my chart won’t show is 15 of the 84 listings over those quarters were re-entered as “New” when prices were “Reduced.” So a house that went in at $155/SqFt and was reduced to $150 and $145 would be counted three times. When I took those duplicate listings out it lowered the total average by an overall $3/SqFt. Plus 28 listings that were canceled so their listing dates don’t show up. Assuming most of the canceled listings were among those that went on the market way too high, the actual average asking $/SqFt would have been a lot higher than my calculations. And finally, I'm including foreclosures and distress sales, which would bring the numbers down. So, in reality, I am not lying or manipulating the data to satisfy a vested interest (which I admit, I have). But my numbers are actually more conservative than what I could justify! But getting Buyers (who want to believe prices are falling faster and farther than the price of CITI stock) to believe the reality and not the perception is difficult. One other thing you need to realize. Here I'm just looking at houses in Piney-Z Plantation under 1800 SqFT for a couple of reasons. One, right now my listings are on 50 or 60 Ft lots which are the majority of 1800 SqFt and less homes. Secondly, the numbers on larger homes would not be the same. Basically, the higher you go in the market, the worse things have been. Which is why I tell the person who is "Up-Sizing" now is the time. You might take a 10% loss on your $200,000 home, but your Seller is taking a 20% loss on your new $300,000 home. And $60,000 - $20,000 means you didn't lose $20,000, you made $40,000! What we have seen was that in 2006 Sellers listed houses for Fair Market Value (right at average sold $/SqFt), but into 2007 they listed like the appreciation was still around 5%/year. Sold prices were slipping a little, but asking prices were still going up! In the Fall they finally started dropping prices to stay closer to market value, which hasn’t dropped that much. The highly visible “Reduced” signs and foreclosures have gotten most of the attention along with a few dramatic examples of a Seller taking a big loss because they couldn't keep making payments on the old house and the new one they had already bought. But, if you look at all the data for this range of houses, you get a different picture from the statewide stories you hear in the media. If you ask a knowledgeable person, you will learn the other thing that has dropped significantly is the size and value of houses Buyers are purchasing. With 100% financing harder to get and more people getting 90 to 95% financing, the same Buyers who would have been looking for a $250,000 house three years ago are looking for a $200,000 house today. Now, with prices having dropped 8.5% in three years and currently looking fairly flat, do you think it is more likely interest rates will go up 1/4% or that prices come down three times as much in the next few months as over the last three years? If you’re waiting for prices to “bottom out,” then the time to buy and save money is before interest rates go up!
National Mortgage Interest Rate Averages taken from http://www.bankrate.com/brm/graphs/graph_trend.asp?web=brm on Feb. 9, 2009. (NOTE: I am not a Certified Public Accountant, Certified Financial Planner, or Lawyer. My calculations do not take into account such things as taxes or the future value of money. If you take my advice and make money, I make no claim to any portion of your profits. Likewise, if you take my advice and loose money, I accept no responsibility. No one really knows what interest rates and house prices will do in the future.) |
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Call Your Neighbor 4930 Heritage Park Blvd. Tallahassee, Florida 32301 Phone 562-8000 FAX 850.205.3100 TOLL FREE 888-749-5926
Licensed Real Estate Brokerage by the Florida Real Estate Commission and Licensed Mortgage Brokerage Business by the Florida Department of Financial Services.
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