For the past few years, many homeowners have found themselves trapped, so to speak, in their homes. Not able to sell because they have owed more on their mortgages than their homes were worth and perhaps not even able toRefinance to a lower rate because of the same market value issues. With home prices now steadily increasing, many are in a position where they are finally able to put their homes on the market. Of those anxious to sell, many have growing families and need to move to a larger home, while others may have originally bought more home than they can comfortably afford and are hoping to downsize to something that fits better within their budget. Either way, this pent up demand is adding strength to our current housing market and helping to fuel higher prices.
Is the Appreciation in Value Real?
There are differing opinions as to whether we are now in a temporary housing bubble triggered by artificially produced sources, or if the growth will continue. On the one hand, it is clear that with the government pumping $85 billion per month in bond purchases through “Quantitative Easing III,” we are likely to see a continued corrective movement in the stock market as well as higher interest rates as the program comes to an end. However, with housing being a commodity-based product, home values will certainly increase when the inevitable inflation hits that follows such significant government intervention. Given both sides of the equation, many believe that over the long term, home values are poised to continue moving higher.
Impact of Higher mortgage Rates and Higher Values
The mortgage interest rate market has seen substantial change since rates began to move higher in May of 2013. As a result, many fear that the combination of higher home prices and interest rates, which ultimately translate to larger house payments, will begin to slow down the growth of the housing market. Those who purchased a home last year seemed to have timed the market just right. If we consider that home values have, on average, increased by 10% in the past 12 months, not only will homebuyers pay more for the same home today, they will also have a higher interest rate as well. Consider the following example which shows the impact the higher interest rates and home values have had to a monthly payment:
Date Price Interest Rate P&I Payment
Last Year $200,000 3.50% $898.09
This Year $220,000 4.50% $1,114.71
Increase in Monthly Payment
The above example illustrates a 24% increase in monthly house payment. This increase is measured overall as the home affordability index. As values and interest rates move higher, homes become less affordable. Eventually, if the trend continues and homes become less “affordable”, the housing market will cool. Despite this, many experts feel we have several years of a strong housing market ahead of us. Watching the Home Affordability Index will assist in predicting the future of the housing market.
Bottom line, right now is the best time to sell a home that we have seen in over five years and with interest rates still incredibly low, it is still a good time to buy before any additional increases begin to set in. If you are one of the many who are considering making a move, now is a great time to look into your options. Whether you see yourself in a brand new custom home or a larger home in your same neighborhood, you may be surprised at how easy it would be to sell your current home and find your dream home. If you would like to discuss your options, give us a call. We are always here to help you through each of life’s transitions.
We have also partnered with many fantastic local real estate agents who can help guide you through the buying or selling process; their expert opinions will help you feel at ease in this ever-evolving market. Call us for a trusted referral.