Real Estate Survival Guide with Terry Story
Business:Investing
In this week’s Real Estate Roundup, Steve spoke with Terry Story, 31-year veteran at Keller Williams Realty, about how low-interest rates are significantly shrinking the already dwindling home inventory, creating upward pressure on home prices. Steve and Terry talked about what this all means for home buyers and how to avoid unnecessary problems that can occur by asking the home seller to handle minor repair issues.
Lower Inventory Means Rising PricesInventory in the housing market is getting tighter and tighter. The “canary in the coal mine” in this scenario is the historically low mortgage interest rates. These low rates are producing more prospective home buyers. This increased demand for houses is choking the market, leaving less and less inventory, especially in the low to mid-price range (around $200,000 to $700,000).
At the moment, the basic supply and demand equation is creating demand but not much supply. Terry and Steve have recently talked about the trend among baby boomers to hold on to their existing homes rather than doing the traditional downsizing around retirement time. The net result is that home prices are starting to creep up.
Why Interest Rate Can Be More Important Than PriceInterest rates had increased to around 5% in the fourth quarter of 2018, but mortgage rates are now under 4%. Many people say they’re going to wait to buy a home because prices have gotten too high. But you need to remember how important your mortgage interest rate is in respect to the actual price of the home.
When you finance your home, you should consider affordability rather than just the absolute price, since the mortgage interest rate determines affordability. With a 7% interest rate, for example, you might be able to only afford a $250,000 house, but with rates just above 3%, you could possibly afford a $500,000 house because those significantly lower rates bring down that monthly mortgage payment. Even though home prices are getting pushed up by the low home inventory, these really low mortgage rates mean that you may be able to get a good deal now. Waiting for lower prices to come about might not be your best option. It can be cheaper to buy a higher-priced home with a low-interest rate than buying a lower-priced home with a high-interest rate.
Don’t forget that a huge money-saver can be a 15-year mortgage instead of a 30-year mortgage if you can handle the higher payments. A $250,000 house with a 4.5% rate on a 15-year mortgage can save you over $100,000 in total interest payments, as compared to a 30-year mortgage. If you already have a 30-year mortgage, you could make one extra payment to principal every year, thereby reducing your mortgage payoff time down to about 18 years. In addition, this can save you tens of thousands in interest payments.
Handling Minor Repair Issues When Buying A HomeJust a quick note about home inspectors and the repair issues. An inspector who comes out to check out your home will likely discover some necessary repairs. A good rule of thumb is if it’s less than $100, let it go. Instead of insisting that the seller pays for the repairs, take care of it yourself. It’s not worth creating roadblocks to closing the deal over minor issues. The only things you need to make an issue of are genuine structural problems.
To get more of the benefits of Terry’s expertise, whether you’re a home buyer or a home seller, check out Keller Williams today!
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