Prices are over rated!
Prices get all the attention, quoted on the nightly news and in articles wherever you turn. Price is an important number to a seller but really only at the time they sell. Much more important and chronically overlooked is the cost of ownership…
An analysis of your personal economy
Regardless of glazing over when an economist preaches about the price elasticity of demand graphed in three dimensions, we all do it. You have a clear understanding that your personal economy is bringing money in through your labor and talents and then using that money to buy what you want and need. Simple, straightforward and no calculus required. However there are two concepts from the wider economy that affect
homeownership considerably for most of us, the Cost of Capitol and the effects of Taxation…
What is this going to cost me?
In terms of real estate ownership the Cost of Capitol is the interest rate on your loan. Swings in rates have a major impact on your cost of ownership.
Here are two examples of taking advantage of today’s very favorable cost of capitol.
Compare buying a home today at the same price as in 2002. (Which is roughly were price levels have fallen).
*30 year fixed rates
Now compare being a move up buyer in this market versus four years from now with only moderately higher interest rates, 6%, as well as $50,000 in appreciation over the next four years, only 1.6% annually.
*30 year fixed rates
Just the tax, please!
Taxation can have the effect of reducing your costs even more. Comparing home ownership to renting is the best way to illustrate this affect that taxation has on your overall costs. As a rough rule of thumb your combined state and federal taxes are reduced by around 20%-30% of the monthly loan payment (depending on your tax bracket).
an excerpt from the April issue of Coastal Homes magazine, Santa Cruz County
An excerpt from the April issue of Coastal Homes magazine…
How would you reply to someone who is not making an anticipated move in the market right now based on what they are hearing in the national media, or because of some national real estate statistic?
Monterey Bay Properties answered:
“Don’t wait for the national media to catch up.” Real estate is regional not national. The local markets have seen a significant improvement in the last few months. The tremendous growth of the Silicon Valley is driving up the local markets and the combination of current prices and continued historically low interest rates make this a great time to buy. Some properties are selling with multiple offers; a situation not experienced in years. If buyers are waiting for confirmation from the media, they will miss the boat.”
To read the complete article visit Coastal Homes magazine of Santa Cruz County.
Congress reinstated FHA loan limits to $729,750 in a 70-30 vote. This means that if someone can purchase a property with a 3½% down payment with up to a loan of $729,750. This type of loan has traditionally helped first time home buyers but also helps anyone without 20% down payment. The borrower does pay mortgage insurance because of the lower down payment.
However, Congress chose not to reinstate higher loan limits for government guaranteed mortgages. This loan limit fell to $625,500 in Santa Cruz County and even lower in Monterey County. With the lending industry not fully recovered almost all mortgages being made are of the government insured variety. So these lower limits strip buyers of purchasing power at the middle and upper price ranges and have caused prices to soften in those ranges over the last few months here in Santa Cruz County.
example of a median priced home in Santa Cruz County: $639,000 for a 3 bedroom, 3 bath
The new proposed rules announced March 30th would, if approved, most likely raise borrowing costs for many buyers. The rules simply state that lenders would be required to retain ownership of at least 5% of the loans they make, except for what are considered the highest quality residential mortgages. So now debate starts on what standards will be used to qualify a mortgage as the highest quality. Much is being said about the 20% down payment requirements and how that will affect affordability for first time home buyers. I am personally am also concerned that the new debt to income ratios required will have unforeseen consequences. The new rules state that to qualify as the highest rated mortgage only 28% of a borrower’s income can be used for mortgage related debt. Whereas in the greater San Francisco bay area the accepted ratio for lenders currently is 35%. Residents of our part of northern California have for decades been willing to pay a higher percentage of their income toward homeownership than in other parts of the country. I think that this will mean higher borrowing costs for a majority of purchasers regardless of down payment amount much to the surprise of those trying to make wise policy choices.
For more information on buying and selling real estate visit montereybayprop.com