I’m one of those that enjoy listening to talk shows on the radio. I’m a big sports fan, and so I tend to gravitate to sports talk radio, The Dan Patrick Show, Under Center with McNabb and Malone, and many of the local shows. It’s been awesome as of late, with our own Denver Broncos heading to the Super Bowl, but what I can do without are the constant mortgage ads during each commercial break telling me that I better refinance soon and take advantage of “historically low rates, before they’re gone”.
Over the years since the “Mortgage Meltdown”, we’ve all had to deal with the tirade of radio, television, and internet ads insisting that interest rates will be going up “soon”, and every year from the beginning of the housing crisis (late 2007) through this last year, the ads have proven to be false, as interest rates not only remained low, but actually kept declining until May of 2013. I myself have never used these tactics as a tool to persuade someone of the preverbal “fence”, however when the time is right, and I feel that the economic factors are aligned properly, I will encourage those I’m working with to consider doing something sooner than later.
Currently it’s one of those times, and it’s pretty safe to assume that we’ve seen the last of interest rates in the low to mid 3’s, and I do believe that we will only look back in years to come and be able to pinpoint that May 2013 is where we took the “U-Turn” and started the accent up the interest rate ladder, but this upward climb will have its own up’s and down’s, as interest rate movements are never in a straight line.
However, it’s important to note that unlike my competition who will now become even more aggressive with their advertisements, (since they now have real data to back up their constant barking about increasing interest rates), I myself believe that rates will remain somewhere between the low 4’s and high 4”s for the good part of 2014, and maybe even 2015, but that with the economy continuing to strengthen, and the Federal Reserve curtailing their multiple stimulus programs over the next few years, interest rates will slowly increase moving forward.
Along with the ads about interest rates, you’re also hearing statements from Real Estate Professionals like “The market is red hot” and “it’s a great time to buy” and for good reason, since this is truly the case, and I really don’t blame the Realtors, as they haven’t been able to say such things for many years, however that isn’t good enough reason to run out and make the largest financial decision you will ever make in your entire life, now.
With all that said, I’d now like to explain the “why” behind all these claims and statements, so below I’ve presented some figures for you to review that may help clarify “if” now is a good time for you to at least consider purchasing a home, whether it’s your first, or even if you are a repeat buyer.
What makes it a good time to purchase real estate?
Here’s why it’s a good time: Over the previous six (6) months (as already mentioned above) we’ve kissed the 3 something interest rates goodbye, while over the last 12 months, homes have gained value month over month, and have consistently increased, so the days of the buyer having the upper-hand in the market is also gone, and it’s a full on seller’s paradise, something we haven’t seen in the Denver area in close to 10 years.
Of course, the old adage in real estate, “location, location, location” shall always apply, and each city, and each neighborhood will have conflicting appreciation rates, so for the sake of conversation, I’ve picked the city of Denver, CO as our subject.
Please take a look at the chart below, as it clearly demonstrates how interest rates and home appreciation has and will affect your “purchasing power”.
**Average appreciation rates through 2013 and into 2014 are projected to be around 6 percent to 11 percent, so I used 6 percent as my metric above. Average home prices/values were determined by the National Association of Realtors existing home sales report.
**For the sake of financing comparisons, I presumed a conventional 5% down-payment loan program, and only disclosed principle and interest for payment. Lastly, for interest rate projection, I took the average projections from the Mortgage Bankers Association, Fannie Mae and Freddie Mac.
As you can see, waiting can cost you in all areas, including down-payment, amount financed, the price of the home, as well as the interest rate. If you have been thinking of purchasing your first home, or selling and upgrading to a larger home, now is the time to give it heavy consideration. Those who purchased in 2012 will have the “bragging rights for years to come since they “guessed right”, but for those of you who are still on the “home-buying sidelines” waiting to jump into the “homeownership game” then this could be your year.
As the late, great John Wooden was famous for saying: “Be quick, but don’t hurry”.
Take your time to research and educate yourself about the market, but if you arrive at a place of comfort with the decision of purchasing a home in 2014, then move quickly from there, and don’t look back, as you will be thankful that you opted for making it happen this year vs. continuing to wait it out, and possibly subject yourself to not only higher home prices, but higher interest rates.
Also, don’t forget about the 2014 Colorado Homebuyer Tax Credit, which could end up saving you an average of $42,000 over the life of your mortgage loan. CLICK HERE for more info.
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