Affordability Means Multiple Home Bids

Monthly mortgage payments have dropped to the lowest levels in more than a decade, encouraging home buying.

Due to historically low interest rates and lower home values, monthly payments have dropped to the lowest levels in more than a decade. However, inventory is down as well.

Steven Thomas, an expert in housing trends and an quantitative economics major, explains that "interest rates below 4 percent are not only unheard-of, but absurd.  No matter how long the Fed is poised to keep the 'discount rate' at rock-bottom levels, it will eventually have to increase that rate. An increase is inevitable and only a matter of time. So now is a great time to be a buyer." 

So the reason for multiple offers on for-sale homes? Payments have not been this low since 1999!

According to Thomas, "the median sales price for a single-family detached home in January 2012 was $449,000. Based on the average interest rate for that month of 3.9 percent, the monthly payment was $2,118. In 2006, the median sales price was $713,160, and the interest rate was at 6.4 percent, which resulted in a payment of $4,461, more than twice the January 2012 figure."

The 2012 UCLA Anderson Forecast says that mortgage interest rates will rise to an average of 7.3 percent within a couple years.

At the current median sales price, that means the mortgage payment would increase by nearly $1,000 per month, from $2,118 to $3,078.

Staying in a home purchased at the lower interest rate for 30 years equates to a savings of more than $345,000 over the life of the loan.

So if you have been waiting for the right time to buy, now is the time. 

With that said, to improve your chances be ready to put a loan pre-approval letter in your Realtor's hands and write your offer the day you find the right property; sometimes, even that will be too late.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

MFriedrich April 12, 2012 at 05:58 PM
"So if you have been waiting for the right time to buy, now is the time." I don't blame you. It's your profession. Since a sales commission is attached to every transaction, I know why it's "always a good time to buy". Can you please share with readers examples where it's really a "bad time to buy" a house? Have you ever given this advice to clients during certain markets? This is the same slogan used in 2006 by Realtors at the peak of the housing bubble in Orange County. Some of these clients are surely in foreclosure proceedings as we speak. The "buy now or be price out forever" tactic is also overused regarding mortgage interest rates. Realtors always do this to incite urgency to buy now. You conveniently forgot to ask what else happens when mortgage rates increase to 7.3%? For example, do you think asking prices for these homes would stay the same under such conditions? Your math calc assumes that they would. If mortgage interest rates get up to 7.3% in 2013 or beyond, then it's reasonable to assume that for a time a large pool of prospective buyers will be completely priced out, but later on against fewer bids, home asking prices and home values would likely fall as the cost of money would increase. I really wish the 2008-2012 housing crash would have changed things for the real estate profession, but it seems like we're revisiting scorched ground here.
Steven Thomas April 13, 2012 at 03:14 AM
mfriedrich - it is hard to disagree that too many announce it is a "good time to buy" with an eye on earning a commission; however, your argument has fundamental flaws. First, it is very hard to refute data. Second, there eventually will be a good time to buy. If you had the opportunity to purchase at all time historically low rates and much lower values, then you should lock in and focus on living in your home for years. You will have locked into a payment that makes sense to your family every single month, regardless of what happens to values. Your argument regarding rising rates is flawed. Unfortunately, when it comes to purchasing, very few really consider the cost of homeownership. The focus is more price driven than cost driven. When it comes to a car, the general public hones in on every last dollar. But, not on homes. Currently the problem is too much demand and not enough supply. With not enough supply, the only way to fix the problem is increasing prices or increasing rates. Now, I am sure you will rip every point in this post apart; but, that is what posters have been doing since the beginning of this downturn. Eventually, you are all going to get it wrong. Lately, it seems as if that is the direction that things are heading. My assertions do not come from thin air, I have a quantitative economics background with an emphasis on housing.
MFriedrich April 13, 2012 at 05:29 AM
"Eventually, you are all going to get it wrong." My point is simply that following the biggest housing market crash in American history - one that is not over and still playing out in OC - whether Realtors here would wish to be more cautious or at least more specific going forward about their calls to action. You're right. Eventually I got it wrong. I was wrong to think that the sales schtick would be amended. I agree with Ms. Kowalik's original post that if mortgage interest rates go up from say 5% to 7.3% AND ASSUMING THAT HOUSING ASKING PRICES STAY THE SAME, she's correct - the monthly mortgage payments after a sale would increase from the previous period. Except housing prices (structure and land) typically don't increase during such scenarios. Historically higher borrowing costs for homes reduce the pool of qualified buyers substantially and exert downward pressure on home prices. This is not a bad thing in my view. It's simply how normalized markets work. Perhaps now really is indeed a good time to buy. Rates are indeed very low, and home prices in OC have declined significantly, while monthly rental rates are now increasing. Also, more SFH homes in MV and LF are now valued at or well below rental parity, making it an ideal buy situation, unlike 2005 thru 2011 period. Good reasons do exist to buy a home (or rent one), but the age old Realtor slogan "it's always a good time to buy a home" and "OMG rising mortgage interest rates!" are not.
Mahtty Kowalik April 13, 2012 at 02:14 PM
mfriedrich - Not sure where you saw that I wrote "it's always a good time to buy" or "OMG, rising mortgage interest rates". The purpose of this blog is to explain the reason behind the multiple offers that are being experienced at this time and how discouraging it is to buyers not being able to get the home they want (because they end up in 2nd, 3rd, or 4th position). Buyers - important not to feel defeated, the right home is out there for you and worth the effort.
Paul Earnshaw April 22, 2012 at 07:39 PM
Mfriedrich - As a client of Mahtty's I can tell you she has people's best interest in mind. That article was not a sales pitch, but rather an attempt to explain the current market in our area. Your cynicism is understood, but not everyone is out to take advantage of others.
Mahtty Kowalik April 29, 2012 at 05:38 PM
Paul Earnshaw - Thank you so much for your comment. You and your family are the best and I am so happy you made great friends so quickly with all your new neighbors.


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