Is Price King? Or Are We Missing Something?
I’ve been working in the real estate industry now for 5 years. In that time I haven’t seen (until lately) prices increase in any of the segments.
We have seen single-family homes not selling at the pace of new construction, increasing inventory and softening pricing.
We have seen attached and apartment homes be ravaged by competition due to properties being offloaded by those that might have been job loss in the O&G sector. Having to save and divest their assets to stay afloat caused a lot of apartments, particularly in the downtown core to become available. Again dropping prices.
So you would think with these trends, the last four to five years would have been a fertile soil for new buyers and investors to take advantage of prices.
But what if I told you, that wasn’t the best time to buy? That the lowest prices we have been in recent times in our city was not the best time to buy, but now is.
What if I told you that pandemic, albeit how horrible it has been, brought a gift to the real estate market. Would you believe me?
Let’s look at the interest rates currently being offered. And I will do this in an example.
Say you were purchasing a home for $400,000 and you were able to secure a rate of 2.5% fixed (which is close to what was offered in 2016). You would be paying for the life of the loan the following:
· $400,000 for the principal amount of the loan (including your down payment)
· $137,559.48 in interest over the life of the mortgage (25-year amortization)
That is 34% in interest on your loan for your home.
Now, let’s look at the same-priced home but with today’s interest rates (for ease I will use 1.5% fixed, which is close to what is offered today for new mortgages)
· $400,000 for the principal amount of the loan once again
· $79,669.55 in interest for the entire 25 amortized term of the mortgage.
That is nearly 20% in interest paid of the total amount borrowed ($400,000).
With the change of the interest rate down from 2.5% four years ago to now (1.5%), there is a savings of 14% of your entire loan amount, which is $56,000.
Why is this important? With a change of 1% in your interest rate, it affects your purchasing power of 14% in this example.
When we are looking at the price points of properties each month, it is critical to look at the interest rate changes. Now is the absolute best time to purchase your home because even though the price points have not changed significantly year over year, your purchasing power has.
In the famous words of Iron Man, “You just levelled up.”
I urge you to consider your purchase this year and not wait for the spring market to come in March. If the interest rates just swing 25 or 50 basis points up, your purchasing power significantly gets reduced.
We are at historical lows now, the pandemic made this happen. With all the darkness and suffering it has brought, we should take advantage of the positives it has also presented.
I hope this helps. Thanks for your time. If you’d like to chat more and start your home search today, give me a call at (403) 354-5664 or send me an email at email@example.com
Don’t let the opportunity be wasted away.
Take care, be safe.