21 May 2009

Utah Interest Rates Increase Home Buying Power !

Low interest rates increase buying power

President’s Message

Chris Sloan


               Two weeks ago, interest rates for a 30-year fixed-rate mortgage in Utah were at their lowest point on record in Freddie Mac’s weekly Primary Mortgage Market Survey, which dates back to 1971. The 30-year rate averaged 4.78 percent, tied with a record low set only four weeks earlier.

               As we become accustomed to hearing these types of reports, we tend to forget that these low rates really are significant. Back in the 1980s, when we were also facing recessionary pressures, interest rates were in the double digits, with rates in 1981 averaging 16.63 percent. Compared to today’s rates, a $200,000 loan would have cost $1,700 more each month.

               Of course this is an extreme example, but even small rate decreases can significantly reduce your monthly payment or increase the amount of house you can buy for the money.

For example, at the start of the housing boom in 2004, the interest rate on a 30-year fixed-rate mortgage averaged 5.84 percent (which at the time was incredibly low). That meant if you were buying a home in Utah with a $200,000 loan, your monthly payment would be $1,179 (not taking into account insurance or property taxes).

               With April’s average rate of 4.81 percent, your monthly payment would be reduced to $1,051 — a savings of about $128 per month and more than $1,500 per year.

               While today’s consumer is certainly excited about these lower rates, there is still concern among prospective buyers about prices falling. Potential Utah homeowners may ask themselves why they should buy now if prices could be lower six months or a year from now.

               According to economist Mark Zandi, co-founder of Moody’s Economy.com, U.S. home prices will continue falling until December, with Economy.com saying home prices for Salt Lake will continue falling into 2010.

               Even though there is some disagreement about where prices are headed (some reports say Salt Lake home prices are “overvalued” while others say they’re “fairly valued”), let’s assume the worst in our scenario.

Since the peak in 2007, the median home price of existing single-family homes in Salt Lake County has fallen 6 percent, according to multiple listing service data. Let’s say prices fall another 6 percent in the coming year. We now have a mortgage amount of $188,000. If interest rates remain at their 50-year lows, a buyer will have saved money by waiting, with a mortgage payment of only $988.

However, if interest rates rise next year, which a number of economists say they will, a SLC home buyer could end up paying more. (this includes other largely populated areas like Davis County, & Utah County. Freddie Mac’s Office of the Chief Economist is forecasting that interest rates on a 30-year fixed-rate mortgage will average 5.6 percent in 2010. With the new rates, the $188,000 loan would now cost $1,079 a month — almost $345 a year more than the $200,000 loan at the lower rate.

Gus Faucher, of Moody’s Economy.com, made a similar point when he recently told the Salt Lake Tribune that current interest rates are so low that those who purchase homes in a year may have the same or higher payments than those who buy now — even if prices dip further.

Those who wait to buy will also miss out on seller and government incentives, like the $8,000 first-time home buyer tax credit, which is only available to buyers who close on homes before Dec. 1. The state’s $6,000 grant program, available to first-time and repeat buyers of newly constructed, never-occupied homes, has already distributed half of its available funds, which means buyers who wait could miss out on this incentive as well.

Utah home buyers who are fearful of future price declines should also note that all real estate is local, meaning prices will vary from area to area. Some neighborhoods may see increases in home values, while other places could see a further erosion of prices, especially in areas hard hit by foreclosures. The best way to learn about the market in which you are interested is to talk to a local Realtor. He or she can help you find competitively priced properties as well as negotiate the best deal. To learn more about today’s home-buying incentives or to find a Realtor, visit www.UtahHousingFacts.com.

Or give me a call @ 435-850-4029.

For a complete pictue of Utah Real Estate you can stop by my website, Real Estate In Utah for additional information.  

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