It bears repeating...

I posted this about a month ago, but just had a presentation to a Seller yesterday and pulled this up as an example.

Because they are so low, interest rates have a greater impact on affordability than either appreciation or depreciation factors at this point. Every 1% change in interest rate impacts affordability by 11%. Here is an illustration to consider.

At 3.75% (30 year fixed) the principal and interest portion of a $200,000 is $926.23

If the rate goes to 4.75% you can only borrow $178,000 for a principal and interest payment of $928.53

If the rate goes to 5.75% you can only borrow $159,000 for a principal and interest payment of $927.88

These numbers are incredibly enlightening! Consider that as a Seller, you bought into our local market in 2007-2008 (at our peak) and purchased a home for $159k and have not refinanced. You are considering listing your home and buying and buying a larger home, but the value for your current house is below what you are expecting, say $135k, so you will be taking a loss. Should you stay, or should you go?

Considering you will be re-buying into the same value-depressed market, for the same payment you can now afford to buy a $200k home (which 4-5 years ago sold for $240k) compared to 4-5 years ago!

Same payment, larger (possibly newer) step-up home. Did you lose or gain?

February Financing Updates

Good news for our local market!

For those of you that do not follow me on Twitter, here is a recap of financing changes over the last week designed to help move some inventory.

Last Friday, Jan 29th, Fannie Mae announced it would pay up to 3.5% of Buyers closing costs for purchases of foreclosed homes in it’s inventory. You must close on the purchase between January 28th and April 30th, 2010 and Buyers must be owner-occupants (investors are excluded). If you do not use the entire amount for closing costs, they may also be used towards the purchase of Whirlpool appliances purchased by Fannie Mae, but however you use the credit, the limit is 3.5% of the final purchase price. For more information, visit http://www.homepath.com./

In related news, as of February 1st, FHA suspended it’s anti-flipping rules, opening the FHA-backed foreclosure market to investors. The rules were that you could not buy a home and flip it within 90 days if it was purchased with FHA insurance, in order to stem fraud losses at FHA. However, many foreclosures are in need of repair, and the reality is that investors can purchase these homes, fix them quickly and resell the renovated homes to first-time buyers and other purchasers who might not otherwise buy a home in need of repair. It should also help stabilize values in neighborhoods that have been hard-hit by foreclosures where homes have been sitting vacant and uncared for. The rule suspension is expected to be in effect for at least a year. For more information, read this Washington Post article or the press release on HUD’s website.

If you are interested in foreclosures or short sales in our area, please contact me today!