Housing inventory is at an all-time low. There are 39% fewer homes for sale today than at this time last year, and buyer demand continues to set records. Zillow recently reported:
โNewly pending sales are up 25.5% compared to the same week last year, the highest year-over-year increase in the weekly Zillow database.โ
Whenever there is a shortage in supply of an item thatโs in high demand, the price of that item increases. Thatโs exactly whatโs happening in the real estate market right now. CoreLogicโs latest Home Price Index reports that values have increased by 5.5% over the last year.
This is great news if youโre planning to sell your house; on the other hand, as either a first-time or repeat buyer, this may instead seem like troubling news. However, purchasers should realize that the price of a house is not as important as the cost. Letโs break it down.
There are several factors that influence the cost of a home. The two major ones are the price of the home and the interest rate at which a buyer can borrow the funds necessary to purchase the home.
Last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage was 2.87%. At this time last year, the rate was 3.73%. Letโs use an example to see how that difference impacts the true cost of a home.
Assume you purchased a home last year and took out a $250,000 mortgage. As mentioned above, home values have increased by 5.5% over the last year. To buy that same home this year, you would need to take out a mortgage of $263,750.
How will your monthly mortgage payment change based on todayโs lower mortgage rate?
This table calculates the difference in your monthly payment:
Thatโs a savings of $61 monthly, which adds up to $732 annually and $21,960 over the life of the loan.
Bottom Line
Even though home values have appreciated, itโs a great time to buy a home because mortgage rates are at historic lows.
Content previously posted on Keeping Current Matters
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