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Waiting to Buy a Home may be Costly, Despite Rising Interest Rates

(Published on - 10/23/2018 12:23:25 AM)

September-October 2018. This month's market update is based on the effect of Interest Rates on  Real Estate Sales. Charts and audio referenced are located at the link which follows.

 

DO YOU REALLY THINK HOME PRICES ARE GOING TO DECREASE:  Doubtful. Prices in the Phoenix Valley, like most other parts of the U.S., have continued to rise. Overall, prices continue to increase at a rate of 6-7% per year. Leading economists are saying we might hit a recession in the next couple of years, but they are predicting that this will lead to a slowdown of growth, NOT a reversal of prices.

 

The Phoenix area does have some seasonality in sales. If we look at a 3- month rolling average of sales price-per-square-foot we can see a pattern: Each year between June and September we experience a predictable, yet minor, price drop.  And prices then recover fairly quickly. (see slide)

 

And waiting for prices to drop can be a very long wait. Interest rates continue to threaten to go up in the near future.  Combine higher prices with higher interest rates means it will only get more expensive to own a home.

A few things to consider:

Rates are still historically low. The chart shown from Freddie Mac demonstrates the average 30 year interest rate was 6.04% as recently as November 20, 2008. In fact, rates have not averaged below 6% the past four decades!

 

The amount of money borrowed, property taxes, and HOA fees typically have a much greater impact to monthly payment than an increase in mortgage interest like those we have recently experienced.  Example: $300,000 @ 30-year fixed mortgage (Monthly Principal + Interest):  6.25% interest rate payment is $1,542;   5.000% interest rate is $1,610 =   Payment Difference of just $68/mo.

 

The purchase market is healthy! According to Tina Tamboer of the Cromford Report, prices are projected to continue to rise over the next 3 – 6 months.

The Cromford Report also notes that buyers typically have the most “buying power” in the 4th quarter of the year. 

 

The economy continues its nine-year expansion, with an unemployment rate now at 3.7 percent, the lowest since 1969, according to data released most recently by the Department of Labor.

Consumer confidence hits 138.4 in September, vs. 132 estimates

September's index is near the all-time high of 144.7 reached in 2000, the Conference Board said recently.  "These historically high confidence levels should continue to support healthy consumer spending and should be welcome news for retailers as they begin gearing up for the holiday season," says Lynn Franco, director of economic indicators at the Conference Board.

 

Inflation: Federal Reserve Chairman Jerome Powell spoke recently in Boston before the National Association for Business Economics, stating that he sees the economy’s outlook as “remarkably positive,” but warned that the central bank remains alert for rising prices that often accompany low unemployment. Inflation has remained steadily near the Fed's 2 percent goal, despite increased employment. The Fed also recently revised up its forecast for economic growth in 2018, which, if it holds true, would give President Trump a major victory.

See the Charts and audio that accompany this blog at Why Waiting to Buy a Home may be Expensive

 

 

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