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Home Prices vs. Mortgage Interest Rates

One of my clients recently asked about home prices and interest rates. Specifically we were talking about the Albany housing market in 2014 and where we think home prices and interest rates will be in 2015.

First off, let me just put out the disclaimer. I’ve been wrong before and I’ll be wrong again. So I won’t try to predict where interest rates are going to be in 2015 (5.0%, 4.75%, 5.5%?).  But the question arose will buying a house today cost more, less, or about the same in 2015. My answer is based on where the market has been the last two years, national economic indicators, and US real estate data. More than likely home prices and interest rates will rise in 2015, so whatever homes you see today will cost more in 2015 (both because of rising home prices and increase costs to borrowing).

Now its important to note, when interest rates rise, the cost of buying a home increases (your mortgage payment for the same mortgage is higher), and therefore usually housing prices erode.  Nationally over the last 12 months, rising prices have actually stalled and in some cases reduced housing prices. But locally we’re seeing a different story. (Note: there are usually momentary price drops during big interest rate spikes as we saw in Spring of 2014. However the yearly trend was much different).

Out of curiosity I went back to the 2013 year end real estate numbers. Albany County saw a 3% rise in home prices  in 2013, despite the 25-30% increase in mortgage interest rates (3.5% to 4.25%/4.5%). (see Albany Business Review). Prices only edged up 1.0% for the entire Capital Region housing market. In Albany County I’m guessing home prices edged up around 2%, in between the Albany County (3%) and Capital Region wide (1%) price gains.

Looking at the 2014 year to date (YTD) numbers for the Albany County real estate market, illustrates a continuous positive trend. So far in 2014, home prices are up 5% in Albany County and 3% in the City of Albany in 2014 (despite a price dip in April 2014). Buyers have just adapted to the step up in the interest rates from 2013 and adjusted expectations. The rise in Albany home prices is due in part to the continued positive economic growth, supported by relatively flat mortgage interest rates over the last 10-12 months.

The data is always a month behind. May’s numbers will be out by the end of this week so we’ll have another data point soon. Obviously rising home prices also will help sellers, so rising prices are not all bad news.

 

Latest Capital Region Real Estate Numbers

Here are the latest highlights of the Capital Region real estate numbers, as released by the Greater Capital Association of Realtors. These numbers were released at the end of May and reflect the most recent reported sales data in 2014 (from the month of April). Interestingly pending sales and home prices declined, as did inventory from April 2013.

The biggest challenge to this housing market is the lack of inventory. I’ve had the pleasure of working with dozens of buyers year to date, and our biggest challenge has been finding suitable inventory to meet their needs. While most sellers usually are ready to list their homes by June, the long, hard winter has likely set back sellers (and their home repairs). We could run the risk of sellers pushing off listing until the fall or even next year, which will surely put a squeeze on inventory. We’ll be watching May’s numbers when they are released later this month to see what happens to inventory, prices, and sales.

Below is the latest video. As always, if you have any questions just call.

TU: Monticello’s Secret Sauce To Selling Homes

We reveal the Monticello secret sauce to selling real estate. From Today’s Times Union:

In this new real estate market, buyers are using the Internet to search for their home, and they have thousands of homes to view. If you don’t have the cleanest, brightest, picture of your home’s best side, buyers are just going to click past your home. I call it the 2-second rule: You have 2 seconds to capture a buyer’s attention, so make it count. — Alex Monticello, principal broker and owner of Monticello, Licensed Real Estate Broker.

You can view this listing as an example of how professional photos make a big difference: www.223Lancaster.com.

Why Pre-qualifying for a Mortgage Matters

We advise every buyer we work with to get pre-qualified for a mortgage (assuming you are not paying cash). The New York Times, recently covered the issued and reinforced the benefits of a strong pre-qualification letter. Monticello recommends only working with mortgage lenders who complete a comprehensive pre-qualification process that goes beyond just reviewing the buyer’s credit. The NYT wrote:

Mortgage Master, a direct lender in Walpole, Mass., has also begun offering a level of preapproval that goes beyond a credit check. The lender verifies the same income and asset information upfront that is normally verified for a loan application. The intent is to put the proposed borrower in the same position as a cash buyer, said Paul Anastos, the president of Mortgage Master.

Pre-qualifying for a mortgage has many benefits. in addition to those highlighted by the New York Times.

  1. Even for an experienced buyer, its helpful for you to know how much or how little you’ll need for a downpayment, what are the closing costs, and how much cash you’ll need for closing. 
  2. Credit scores and your credit report, even for the stellar client, sometime contain errors, misinformation, or surprises. Running your credit early not only will give you a rock-solid pre-qualification letter, but it will ensure your credit is clean and pretty. Catching a mistake at the time of your offer could set you back several months and put your purchase contract in danger.
  3. Depending on the mortgage product, your interest rates and personal mortgage insurance with change. As your product changes, your monthly payment may fluctuate. Its important to nail down not only your up front cash, but also your projected interest rate and monthly payment to make sure the purchase is financially sound.
  4. Strong pre-qualification letters make a difference to the seller! This cannot be overstated especially in the era of multiple offers and cash buyers. The only way to assure the seller you’re qualified is a with a pre-qualification letter (based upon a review of your income, debt, and merged credit file) from a reputable and preferably local bank. We’ve seen too many big banks hand out mortgage approval letters, which weren’t worth the paper they were printed on.
  5. It makes a difference whether you’re buying as a primary home, second home, or investment property. Even experienced home owners don’t always understand the nuisances of mortgages for second home purchases or investment products, they are not the same products as a primary home mortgage.

So if you’re going to get a mortgage, or maybe not completely sure whether you’re paying cash for your purchase, pre-qualifying is always the first step. As the NYT noted:

Unlike a preapproval for a certain loan amount, usually based on a check of a borrower’s credit history, pre-underwriting involves a thorough review of all the documentation required for a formal approval, said Peter Grabel, a senior loan originator.