The rise in mortgage rates is the most important news in real estate. As this article is written in June, the sharp change came over a few weeks altering the average mortgage rates from 6 percent to 6.5 percent. This affects every tier of buyers, from first-timers to investment professionals. Some home buyers will succumb to a “hurry-up and buy” attitude, worried that they will loose the opportunity to purchase their dream home.
Others will wait. In 2006, mortgage rates were around 6 percent in January and slowly ticked upwards into the summer, peaking in July around 6.8 percent. While some thought interest rates would hit 7 percent by year's end, they did not. Starting in the fall, they moved down until hitting 6 percent again in December 2006. Ultimately, interest rates are tied to affordability. If interest rates move upwards, the short-term consequence is that you will not be able to afford the home today. But since a majority of home buyers are not paying cash for their home, most will be affected by an interest rate increase. With less people able to buy, prices are likely to come down to compensate.
Buying and selling
Sellers and buyers should know that inventory has risen slightly in the past months. Home sellers should watch their local competition in a $75,000 range. Do not make the mistake and write off different areas of the city as “non-competition.” La Costa homes will compete with North Carlsbad if the values of what draw buyers to it- such as proximity to beach, schools, jobs, age of home – are similar. Rising interest rates will affect affordability, so understand the buyer's dilemma of affordability and make a fair deal. Buyers should know that there is always room to negotiate a good deal on their dream home. However, they should also remember that the average price of a 2,500-square foot home that has sold has stayed strong at $860,000 for almost eight months. A buyer can strike a deal and benefit from a highly-motivated seller with more than average local competition.
Permanent buy down
A buy-down is an upfront payment on a mortgage loan that lowers the interest rate of the mortgage loan. There are two types of buydowns, temporary and permanent. A temporary buydown will lower the borrower's payments for a set time, usually the first few years. The permanent buydown should be the focus. In a market of rising interest rates, sellers will be pressured to reduce their asking price to allow buyers to afford their dream home. A buy-down can create affordability at a reduced cost. A recent example in Inman News, a national publication on real estate, shows the power of a buy-down. For example, for about $18,000, a seller can permanently buy down the interest rate of a $450,000, 30-year loan a full percentage point, shaving $289 a month off the buyer's mortgage payment. (Assuming a 10 percent down payment on a $500,000 home, with a 6.5% interest rate before buy-down.) By agreeing to pay lenders upfront, sellers can provide the buyer with a value equivalent to a much larger reduction in asking price. A price reduction of $45,800 would be needed to provide the same change in monthly cost the $18,000 buy-down. Consult a professional.
Consider Shadowridge?
Those considering investment property and buyers wanting a detached home with a yard but find Carlsbad too expensive should consider Shadowridge area in Vista. With the important opening of Melrose through to Palomar Airport Road, Shadowridge sits in a Carlsbad-close location. Everything is nearby, including jobs, coastline, freeway access and schools. The area boasts a wide array of housing choices, but affordability is the key point. There are 3 bedroom homes with 8,000 lots for low $400's. Numerous greenbelt areas and several city parks are perfect for those needed bedrooms on a tight budget. Recently constructed shopping and retail center have created value that has yet to be realized in the local sales price.
Others will wait. In 2006, mortgage rates were around 6 percent in January and slowly ticked upwards into the summer, peaking in July around 6.8 percent. While some thought interest rates would hit 7 percent by year's end, they did not. Starting in the fall, they moved down until hitting 6 percent again in December 2006. Ultimately, interest rates are tied to affordability. If interest rates move upwards, the short-term consequence is that you will not be able to afford the home today. But since a majority of home buyers are not paying cash for their home, most will be affected by an interest rate increase. With less people able to buy, prices are likely to come down to compensate.
Buying and selling
Sellers and buyers should know that inventory has risen slightly in the past months. Home sellers should watch their local competition in a $75,000 range. Do not make the mistake and write off different areas of the city as “non-competition.” La Costa homes will compete with North Carlsbad if the values of what draw buyers to it- such as proximity to beach, schools, jobs, age of home – are similar. Rising interest rates will affect affordability, so understand the buyer's dilemma of affordability and make a fair deal. Buyers should know that there is always room to negotiate a good deal on their dream home. However, they should also remember that the average price of a 2,500-square foot home that has sold has stayed strong at $860,000 for almost eight months. A buyer can strike a deal and benefit from a highly-motivated seller with more than average local competition.
Permanent buy down
A buy-down is an upfront payment on a mortgage loan that lowers the interest rate of the mortgage loan. There are two types of buydowns, temporary and permanent. A temporary buydown will lower the borrower's payments for a set time, usually the first few years. The permanent buydown should be the focus. In a market of rising interest rates, sellers will be pressured to reduce their asking price to allow buyers to afford their dream home. A buy-down can create affordability at a reduced cost. A recent example in Inman News, a national publication on real estate, shows the power of a buy-down. For example, for about $18,000, a seller can permanently buy down the interest rate of a $450,000, 30-year loan a full percentage point, shaving $289 a month off the buyer's mortgage payment. (Assuming a 10 percent down payment on a $500,000 home, with a 6.5% interest rate before buy-down.) By agreeing to pay lenders upfront, sellers can provide the buyer with a value equivalent to a much larger reduction in asking price. A price reduction of $45,800 would be needed to provide the same change in monthly cost the $18,000 buy-down. Consult a professional.
Consider Shadowridge?
Those considering investment property and buyers wanting a detached home with a yard but find Carlsbad too expensive should consider Shadowridge area in Vista. With the important opening of Melrose through to Palomar Airport Road, Shadowridge sits in a Carlsbad-close location. Everything is nearby, including jobs, coastline, freeway access and schools. The area boasts a wide array of housing choices, but affordability is the key point. There are 3 bedroom homes with 8,000 lots for low $400's. Numerous greenbelt areas and several city parks are perfect for those needed bedrooms on a tight budget. Recently constructed shopping and retail center have created value that has yet to be realized in the local sales price.