Best Time to Buy or Refinance?
The Business Cycle Dating Committee of the National Bureau of Economic Research determined the end of the recession occurred in June 2009 based on the real GDP, real income, employment, industrial production, and wholesale-retail sales. Thus, it had a turning point toward the expansion even though it will take some time to visibly see the results. Interest rates and the housing prices will surely rise when the expansion really starts to work into the neighborhood, whenever it happens. Thus, all these indicators are pointing to one direction, it is the best time to buy the home of your dreams, that is until the interest rates and housing prices starting to creep up. (Please see below for the market news in details.)
Historically low interest rates
Same period in 2009, 30-year fixed rate was at 5.04%. This means more buying power for the buyers and more sales for the sellers in turn.
Then, what is the actual ‘buying power’? For example, the monthly payment of basic principal and interest only for the house worth $300,000 is $1,197.58 at 4.37% compared to $1,294.25 at 5.04%, based on $240,000 loan amount after 20% down payment. That is the savings of $96.67. When this saving is put back to work toward the buying power, you could borrow $259,373.73 with same payment of $1,294.25 at 4.37%, meaning you could buy the house worth $324,217.16. That is whopping $19,373.73 increase of buying power. Just 0.67% drop in the rate over one year period gave you almost $20,000 more home, maybe extra bedroom you really needed.
Another way to look at this buying power is that since $20,000 represents almost 7% of the house price, even if it went down 7% over one year period, you are breaking even. 0.67% lower rate means 7% of total house worth in this case, not bad.
Comparing to the higher loan amount with the 6 or 7 percent interest rate most of the home owner’s have now will surely increase the buying power way more than $20,000, like $100,000 savings when compared to $500,000 loan amount with 6% using same method above. Now then, let’s look at the ever falling housing prices.
Housing Price Nearing the Bottom
It is generally agreed among the real estate professionals that the housing price drop is currently nearing or at the bottom. In fact, the average sales price have been declining three years in a row since 2007 (2008 and 2009) but the 2010 report period (not seasonally adjusted yet) shows 2.9% increase compared to last year in U.S. It showed 5.0% increase from last year in the Northeast region according to the National Association of Realtor’s Existing Home Sales Overview report.
Unemployment Rate & Foreclosure Rate
The unemployment rate in Maryland is 7.3% compared to National high of 14.4% in Nevada for the August 2010 per National Bureau of Economic Research. The national average was 9.6%, thus Maryland is about 2% better than average. By the way, Maryland’s unemployment rate was always been about that much below the national average since 1990.
Overall foreclosure filings rose 4.18 percent in August from the previous month, and were down 5.48 percent from a year ago according to Realty Trac. The inventory for the potentially distressed sale is going to be with us for a while, at least 2 to 3 years more.
Recession Over
National Bureau of Economic Research announced that the current recession ended in June 2009. This recession, started in December 2007 and lasted 18 months, longest since World War II, is officially over. It is hard to believe and surely does not feel like it. However, June 2009 marks the end of the declining phase and the start of the rising phase of the business cycle, it stated. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion. Anyway, it is over and we are in the expansion stage.
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