The best time to get ready for interest rates was when the L.A. Loft Blog recommended to buy in 2011 to 2012 when prices and interest rates were extremely low. It was the best time in decades to buy real estate. I followed my own advice and changed my finances substantially. The good news is that it is not too late. Today in 2013/2014 is the 2nd best time in decades to buy real estate. Prices are still relatively low (some real estate prices are still well below their all time highs), and interest rates have started to rise but are still near all-time lows. We have received a clear warning that we may not be able to afford to buy in a few years.
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The wealthy have always been able to buy real estate. The lower-middle income buyers were able to buy beautiful Downtown lofts a year ago. Not any more. Now the upper-middle income buyers can barely afford to buy in Downtown. That opportunity is expected to be gone within a few years. Like New York City today, only upper-income buyer will be able to buy a nice place in Downtown in a few years. Thomas A. Bayles of Prospect Mortgage said today: We knew this day would eventually come, but deep down we hoped we could avoid the inevitable. 3 out of 4 Economists expect the Fed to annouce the tapering of their bond purchases today, which would mark the beginning of the end for quantitative easing. The Federal Reserve began this stimulus in September 2012 in a effort to keep interest rates from rising as the U.S economy started to show signs of recovery. Now with the recovery in fully swing, the Fed will be reducing their purchases in $10 – $15 billion dollar clips over the next year. No one knows exactly where interest rates will end up, but they certainly aren’t getting any lower. I recently had a client who only had 5% down and was contemplating waiting until he had 20% down to purchase his new home (mostly because of the mortgage insurance premiums), which would have taken 1-2 years. At first this seems like the most prudent approach, however, when we crunched the numbers waiting to buy was the worst idea that would have cost him over a hundred thousand dollars. Here is how that conversation went: Mr. Smith, With the market projected to appreciate by roughly 5-10% over the next 2-3 years, what you can purchase now for $500,000 will cost you $600,000 in 2 years when you have 20% down. Not to mention, the interest rate on your loan 2 years from now will be considerably higher. Let’s say you pay mortgage insurance for 2 years at $400 per month, that would total $9600 you paid over the 2 year period. Basically in a effort to save $9600, you are actually losing $100,000 in projected equity along with dramatically increasing your cost to borrow which could cost you another $100,000 in interest over the life of your loan.
By knowing the facts, today’s buyers can understand and take advantage of the relatively low prices and rates. With a purchase so large and important, it is natural for many to delay several years after seeing their friends and family sitting pretty with real estate. Unfortunately, those overly careful folks often find that they pay a high price for waiting. Those who are on the fence have one last chance to take advantage of the financial gain or simply to enjoy the sense of well being and financial security that comes from investing in a good price and interest rate environment that could soon be gone. DOWNTOWN LOFT & CONDO LISTINGS: FOR SALE | RENTALS
The #1 Downtown buyer’s agent with 17 successful buyer transactions in 2013, Corey Chambers is a Realtor® with the Double Platinum award-winning team. J.D. Power Award 2012 – Keller Williams Realty ranked Highest in Overall Satisfaction for Home Buyers and Sellers Among National Full Service Real Estate Firms. DRE#01889449