Thursday, April 9, 2009

Current Mortgage Rates & Housing Affordability

Posted by The Jill Smith Team at 12:50 PM

As the rate of house price declines begins to slow and the cycle nears its end, the math reality of this historic time will become clear and compelling. For those of you waiting for house prices to stop falling consider this:
  • NJ house prices are dropping at a rate of 1/2 % per month, predicted to bottom out in the 2nd half of 2009.
  • Interest rates are at historic lows. The federal government has indicated very clearly that they will hold mortgage rates artificially low until at most, late summer or early fall. Any thinking expert is certain of the impending rise in interest rates as a result of massive government spending.
  • The ratio of home affordability will begin to disadvantage those who choose to wait. WHY? The affordability ratio is 9 to 1. For every 1% increase in interest rates you lose 9% in buying power (or affordability).
Example: A $600,000 home declining at ½ % per month will be worth $576,415 in December (assuming that prices continue to drop till December…not likely). A 1% increase in interest rates (highly likely) will mean a reduction in buying power to $546,000! So the $600,000 home that you can afford today is out of reach by the fall! Plus, you will pay more in interest (a lot more) over the life of your loan.

For those who are fighting the headwind of media hype and misinformation, hopefully the straight numbers will help you make the right decision.

I’m happy to discuss further with you,

Steve Lupton
Loan Officer
American United Mortgage
(P) 908-522-6500

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