Historically Low and Favorable Home Prices
When thinking of buying real estate, which market would you rather be in? A Buyer's market or a Seller's market? Not too difficult to figure is it?
Is a 30 year mortgage interest rate at 4.5 % appealing?
Are favorable home prices a consideration?
When looking to buy a home in a seller's market, a home buyer may experience a shortage of available homes to look at, may have to compete with other buyers interested in the same home and may be in situations where there are multiple contract offers from home buyers interested in the same home resulting in bidding wars among buyers and higher sale prices. In a market such as that, buyer demand exceeds available home inventory, listing days on the market begin to drop and asking prices begin to increase. And there have been various real estate markets like this in the past 38 years when mortgage interest rates were no where near historic lows! Economics 101, supply and demand, at its finest!
The fact of the matter is that the real estate market began to change in earlty 2006. Listing inventory stayed on the market longer as there were fewer home buyers. Buyers became hesitant and were no longer anxious to meet home owner's asking prices or counter offers. Real estate values began to stabilize, and then started to drop. And they have continued to drop, creating an ideal opportunity and the perfect real estate market for all type of buyers.
I cannot remember a real estate market in the 38 plus years I am selling real estate where mortgage interest rates are at levels of creating new historic lows and real estate values have dropped as substantially as they have!
Over the years I have been selling real estate, I have often been asked by home buyers when looking to purchase, "what do you think this home will be worth 5 years from now" or "how much appreciation can I expect if I sell it in 5 years". Reasonable questions to be asked by a home buyer.
My answers were always the same. It depends. It depends are on the current market when you will be selling, it depends on the mortgage interest rates, it depends on the economy and the financial markets, it depends on the the job market, it depends on national events, it depends on local market conditions, it depends on what improvements you've made or didn't make to the home. It just depends on so many things!
However, back in 2006 and 2007 when I answered that question when asked, never did I think that the drop in real estate values would have been as severe as they have been, especially since high mortgage interest rates were not a factor and did not enter the scenario. Likewise, I could have never believed that my technolgy stock profile would drop as severe as it did after the stock boom in 2000. But it has.
Why is the current real estate market a buy now scenario for home buyers? Two important reasons: Mortgage Interest Rates and Favorable Home Prices!
* Mortgage Interest Rates: Take a look at the 5 Year History of Average Mortgage Interest Rates!
Mortgage interest rates are at or near 40 year historic levels! The questions is, how long can they stay at these levels? The funny thing is that we never never know when interest rates hit bottom, until they've gone up! Then it is too late! A change of just .05% in the mortgage interest rate increases the monthly mortgage payment by $82.88, or $994.56 per year on a mortgage of $275,000.That slight increase in the mortgage rate reduces the amount of the mortgage to be borrowed by approximately $15,000 in order to keep the same payment as the lower interest rate. More simply put, if a buyer did not want a higher mortgage payment, their price range or mortgage amount would need to drop by $15,000 or they would need to add an additional $15,000 to the down payment.
* Favorable Home Prices: So what has happened with real estate values in the same period?
Real estate is local. Real estate values vary from one neighborhood or section within a town, from town to town, county to county and state to state. There are so many factors that can affect real estate values, most of which can be read daily.
Needless to say, real estate values are substantially lower than previous years, and that is the reason why the current real estate market is a buy now scenario for all type of buyers and not just for first time buyers! The math is simple! The purchase price determines minimum down payment, which determines the amount of a mortgage required and then determines the amount of the mortgage payment.
As purchase prices drop, buyers benefit as minimum down payment requirements are less, the amount needed for a mortgage is less and the monthly mortgage payment is less, whether looking to buy a home a home in Iselin, New Jersey, Colonia, Edison, Middlesex County or any other State.
Here is a look at closed sale residential one family statistics in Middlesex County, as obtained from the Middlesex County Multiple Listing System as of July 24, 2010. Statistics are provided through 2006 as the MLS saves 5 years of data and previous available reports did not include calculations for only Mddlesex County.
Will prices drop further? They may or they may not. The more immediate concern should be will mortgage interest rates rise, when and by how much. A thorough understanding of the impact of mortgage interest rates is also important.
Regardless of where the home search is or what town a home is located in, obtaining reliable market value information is important! Information like this can be provided by your local REALTOR. Home buyers and home sellers are always asking for this type information.
Our immediate market area is Northern Middlesex County and here are the links to the average sale prices since 2002 for some of the towns Choice Realty lists, shows or sell homes in every day.
Iselin
Colonia
Avenel
Fords
Woodbridge
Edison
Metuchen
Carteret
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