So we all are aware of the fact that interest rates are low right? So why aren’t more people buying?? I think this is in part to the simple fact that your average consumer does not look at or understand the difference of savings these lower interest rates provide. Most people are terrified that prices are going to continue to drop. I know it is hard to compare the two, but when people go purchase a new car you never hear them saying “I’m scared to buy this car because it is going to lose value”. Cars are one of the worst depreciating assets you can buy, and hardly ever appreciate in value. Most consumers look at the cost, or monthly payment for the car as one of the biggest deciding factors when purchasing. This logic should be applied for housing, especially now. Housing is a necessity, just like a car and most people right now are cautious to buy. Buying and car vs a home purchase is way different do not get me wrong, but the point I am trying to make is the cost associated with the house should be looked just as much as the price of the home. Seeing as we all have to have a place to live why not purchase at a time when the cost and price are down significantly. Let us not forget that real estate is a long term investment and was never meant to be a quick turnaround like other investments. Let’s not look at any other factors that involve why you should but right now besides costs.
First off, interest rates are historically low, the last time interest rates where as low as they are now, Eisenhower was president. Take a moment to think about that…. Okay now that you have digested that, do you think rates will stay that low forever?? That was 55 years ago! Simply put, they cannot. So what exactly is the biggest benefit to lower rates?? The cost you have to pay to own the home, and when you break down the numbers it may surprise you.
In 2004 when the market was booming the average interest rate was 6.29%, right now you average is 4.50%. Doesn’t that make you want to jump out of your chair and buy a house? Maybe not, but let’s break down the difference and this may change your mind a bit:
On a $250,000 mortgage at 6.29% your payment would be $1545.80
That same mortgage today at 4.50% your payment would be $1266.71.
The average person lives in a house for 7 years that is a savings of $23,443.56.
Back in 2004 6.29% was considered low rate, and made housing more affordable to more Americans. Now, not only do you have lower prices, you have lower costs!! Go take a look at the chart above (30 year fixed in red click on chart for enhanced view) this will give you an indication of history of interest rates. This won’t last forever so taking advantage now can pay dividends for years to come. In fact the National Association of Realtors and the Mortgage Bankers Association both predict interest rates to go up the next seven quarters to 5.8%(NAR), and MBA to 5.4%. If are a consumer looking to buy or an agent looking to help consumers buy, please understand the cost benefit of buying now in a historical time. Waiting can have a substantial detrimental effect to your monthly mortgage, and long term mortgage cost.