Checking The Pulse Of The Kansas City Real Estate Market
9 out of 10 Kansas City home buyers tell me that locating a home at a PRICE they can justify is the most important factor in their home search. I can easily show those nine how that can be flawed thinking. We are seeing historically LOW interests rates and rates that I may never see again in my lifetime. Today’s interest rates are so low in fact that they need weighed just as much as a home’s price when making the decision whether to purchase. Don’t believe me? Then check this out…
Scenario: Over the next 18 months, prices decrease by 5.0% but interest rates increase by 0.5%:
123 Oak – Current Market:
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123 Oak – Future Scenario: |
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| Home Price is $200,000 |
Home Price FALLS 5% to $190,000 |
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| Interest Rates are 5.0% |
Interest Rate RISES 0.5% to 5.5% |
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| Monthly Payment = $1,074 |
Monthly Payment = $1,079 |
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Note: monthly payments above include principal & interest only (no property taxes, homeowner’s insurance, etc.)
So using the above scenario, let’s say I take you out and we locate the perfect $200,000 home. It even has a jetted master bathroom corner tub (that your spouse loves) but you tell your spouse, “I wear the pants in this family and I won’t pay a dollar more than $190,000.” All this despite the fact it’s the perfect home and I show you the market stats indicating the home is priced perfectly in our current Kansas City real estate market. You interject, “It’s not a deal, if it’s not a steal. We’ll wait to see if we can buy the home later for 5% less”.
Well that home sells the next day, your spouse leaves you and the home search is over. 18 months later, you’ve reconciled with your spouse and we locate an identical home, in the same subdivision on the same type of lot, etc. Both homes even face west. Everything is exactly the same as the home you lost out on… except this home’s corner tub isn’t jetted. Your spouse doesn’t say a word on this given day, but you know you’re never going to hear the end of it… You tell me and your spouse that everything is going to turn out rosy because you’re going to be able to purchase THIS home for just $190,000. At this point, I break the following news to you: Although we can buy the home for 5% less than the same home 18 months ago, interest rates have gone up from 5.0% to 5.5%. So your $190,000 home with a 5.5% interest rate has virtually the same payment – actually $5 higher – as the guy who paid $200,000 but got a 5.0% interest rate – oh, and don’t forget the corner tub on your home isn’t jetted. Or that you lost out on the mortgage interest deduction the last year and a half. Or that you had to deal with that landlord and the neighbors while living in that rental.
I’m not kidding people. If you were to wait to buy and home prices DROP 5% but interest rates RISE just 0.5%, you have a wash on your hands. The scenario works the same if home prices DROP 10% but interest rates RISE 1.0%. See the pattern? And if you don’t think interest rates could be at 6% in 6 or 12 months, I have history to show you otherwise. The Fed even has plans to stop buying mortgage-backed securities in the next month, which some analysts are predicting could jump interest rates a FULL PERCENT by the end of 2010. Home prices aren’t in a free-fall here in the Kansas City area and I can’t imagine any scenario where home prices would drop 10% quicker than interest rates would go up 1%. They may not fall at all. But I bet interest rates rise. Do you agree?
If you think interest rates will rise, here’s one last scenario for you to ponder… If you wait 2 years and a $300,000 home (today) can be purchased for $270,000 (a 10% drop) BUT interest rates go up from 5.0% (today) to 7% at that time, your monthly payment would be $187 HIGHER ($1,610 versus $1,797). This despite the fact that you bought the home for $30,000 less by having waited! Oh, and I haven’t even mentioned the tax credit that’s here today but gone tomorrow. So, do you still want to wait to buy that perfect home?
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