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Health & Fitness

Now's a Good Time to Buy: Oh Come Now, Really?

Then and Now, Home Ownership Costs for Todays' Home Buyer - Lower Buyer Costs, the Primary Justification for the Assertion that "This is a Good Time to Buy."

There's a catch phrase popular with real estate professionals:“now is the time to buy. ” Okay, wiesenheimer, just what is it about today's market that makes it a good time to buy? Let's start with historical perspective.

Five years ago, home values were soaring, sales were frenzied, and home ownership was at an all-time high. Inventory levels simply could not keep up with demand, so bidding wars were commonplace and homes flew off the market in record time. It was a seller's market and hard for buyers.

Today’s market differs greatly. 

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Declining prices have spared few neighborhoods. Inventory levels float high above those of 2006 and the average time to sell a home can stretch to months. All of this points toward a buyer’s market. As we would say in a tennis match: advantage buyer. Other buyer advantages include historically low interest rates an attractive affordability.

With this in mind, consider:

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  • The average interest rate on a 30-year-mortgage today is 4.13%(2) and in September 2006 it was 6.41%(2)
  • A $400,000 house today would have cost $642,650 in September 2006(1) which is a difference of $242,650. *The following scenarios assume these home prices.
  • Using the above home prices and interest rates, the monthly payment today would be $1,939.76 and in September 2006 it would have been $4,024.02 – a difference of $2,084.26 per month.
  • The $2,084.26 per month savings adds up to a total of $750,333 when multiplied over the term of a 30-year loan.
  • If today’s buyer took out a 30-year-loan at the current interest rate (4.13%), but made the same monthly payments as the buyer in 2006 ($4,024.02), the loan would be paid off in just over 10 years – the buyer in 2006 would still have almost 15 more years of payments.

 

1) calculated using FHFA figures for the West Coast in September 2011

 

2) from FHLMC website for September 2011

 

A "good time to buy?"  The math compells a yes answer. But there's more than math in a home purchase. Each buyer’s unique circumstances determines when to buy. But the numbers are compelling.

This blog is an edited and abridged version of work done by Dan Givens, designated broker of Windermere Northwest. Dan's work appears in the Windermere Real Estate Blog

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