This past week I met with Michael Deery, mortgage expert at Citywide Financial regarding the current real estate market and enjoyed the conversation so much that I asked him to share his insights. Here’s what he had to say:
“For buyers still on the fence about buying a home or move-up buyers still waiting to sell, they should take a few things into consideration and try to make a decision soon. For example, interest rates have increased for four straight months, nearly .5 percent during this time; home prices are rising everywhere as multiple buyers are bidding on limited inventory; and the FHA will soon require FHA buyers to pay mortgage insurance for the life of their loan. With these changes, we’re seeing the cost of purchasing a home increasing.
“Home prices are on the rise everywhere, as limited inventory is driving prices up. It’s the old law of supply and demand — as supply falls, demand will rise, and this is why we’re seeing bidding wars for properties going on in most local markets.
“On June 3, the FHA will implement a change that will dramatically increase the cost of FHA loans for consumers. They will require FHA buyers who put down 10 percent or less (which is most FHA buyers) to pay mortgage insurance (‘MIP’) for the life of the loan. Currently, if a home was purchased for $175,000 with 3.5 percent down at a 4 percent mortgage rate on a 30-year term, the MIP would be required for approximately 9 years and 9 months based on normal amortization. The new ruling basically doubles the amount of total MIP if the loan is paid to term. For buyers to avoid these increases, they’ll need to have a signed contract on a property on or before June 3, 2013. So it’s a good idea for buyers planning on using FHA financing to get moving quickly.
“With interest rates on the rise, now is a great time for move-up sellers to sell and buy a new home, as their home will probably sell quickly due to limited inventory. A question some sellers may have: is it better to wait and see if their home appreciates another 3-4 percent over the next 12 months to net more profit, or is it better to sell now and buy your dream move-up home while rates and borrowing costs are still very affordable? Let’s compare.
“Let’s say we have a seller who can purchase a home today for $360,000 with a rate of 3.4 percent. A year from now, the same home costs $371,160 (roughly 3 percent appreciation) and rates have increased to 4.4 percent. By waiting a year to buy, the seller may pay an extra $262 a month, and over 30 years that’s an additional $94,320 to buy the same home ($262 x 360 months = $94,320). So by waiting a year to sell, yes you may gain an additional $11,000 in appreciation, but don’t forget the other half of that equation.
“I believe that now is a great time to buy. With interest rates and home prices on the rise, and with the FHA changes coming in June, these are good reasons we should buy now!”
By U-T San Diego 6 a.m.March 30, 2013