Renting vs buying in todays market
A question I get asked quite often is “Should we continue to rent or is it beneficial to buy right now?” Well, it depends on the numbers! Back when interest rates and home prices were still sky high, renting is a great temporary solution for persons who want a place of their own. However, things have changed significantly since so let’s analyze the numbers:
As an example, in Santa Ana, a 3 bed 2 bath 1500 SF SFR will rent for about $2,000/mo or more. The same 3 bed 2 bath 1500 SF SFR can be had for $275,000 to $325,000. Let’s see what the numbers look like as far as out of pocket costs and monthly payments:
| Rental ($2000/mo) | |
| Deposit (out of pocket) |
$4,000.00 |
| Monthly Lease Payment |
$2,000.00 |
| Purchase ($325,000) | |
| Down Payment (out of pocket) |
$11,375.00 |
| Principle & Interest Payments @ 3.875% |
$1,500.59 |
| Estimated Tax and Insurance |
325.00 |
| Estimated Mortgage Insurance |
332.41 |
| Estimated Monthly Housing Expense |
$2,158.00 |
Most people at this point may realize that for just a little more every month, they can experience the freedom and joy of homeownership. However, there will still be some that may say “well that’s still $158 more than renting!” Yes! That’s true but we’re forgetting that the homeowner may now qualify for an annual income deduction of around $11,000 on their tax returns for the interest paid on their mortgage, one of the many benefits of owning a home. That’s about $2,400 a year or $200 a month in savings for most folks. Mind you that we are Realtors and not CPA’s by any means, so you will need to advise your prospective buyers to consult with a CPA regarding tax related questions. However, the benefit of owning vs. buying is quite clear given the unique circumstances today where both prices and interest rates are incredibly low. Some of our thirty year products today are as low as 3.375%!
Renters need a decent credit to lease a place. If their credit is good enough for leasing, chances are, it’s probably good enough for a purchase. Can you name a few renters within your sphere of influence who may need your help?
I will be glad to answer any questions or comments you may have. Please feel free to shoot me an email at [email protected]. Stay tuned for my cash-flow analysis of investment opportunities today!
Tri Doan
Lock An Instant 13% Savings On Your Monthly Mortgage Payment
Falling mortgage rates make owning a home more affordable. Mortgage rates are directly tied to monthly mortgage payment so as mortgage rates drop, so does the cost of home-ownership.
It’s a money-saving time to buy a home in Carlsbad — or to refinance one. Mortgage rates have never been this low in history.
According to Freddie Mac, last week, the average 30-year fixed rate mortgage fell to 3.87% nationwide for borrowers willing to pay an accompanying 0.8 discount points plus closing costs. 0.8 discount points is a one-time closing cost equal to 0.8 percent of your loan size, or $800 per $100,000 borrowed.
This represents an incredible value as compared to February of last year.
It was exactly one year ago that mortgage rates begin their long slide lower. On February 11, 2011, the 30-year fixed rate mortgage reached its peak for the year, reading 5.05% in Freddie Mac’s nationwide survey. If you are among the many U.S. households that bought or refinanced a home around that time, you could choose to replace your current home loan with a new one and save close to 13% on your monthly mortgage payment.
13 percent saved on your mortgage is a noteworthy statistic.
Look at this 30-year fixed rate mortgage payment comparison over the last 12 months :
- February 2011 : $539.88 principal + interest per $100,000 borrowed
- February 2012 : $469.95 principal + interest per $100,000 borrowed
Because of falling mortgage rates, a homeowner with a $250,000 30-year fixed rate mortgage would save at least $175 per month just by refinancing into a new loan at today’s mortgage rates. That’s $2,100 in savings per year.
Even after accounting for discount points and closing costs, the “break-even point” on a mortgage like that can come relatively quickly.
We can’t predict mortgage rates so there’s no promise rates will stay like this forever. If you’re planning to buy a home or refinance one, the best way to keep your monthly payments down is to lock your rate while rates are still low.
The market looks ripe for that now.
Reduce Long-Term Loan Costs With A 15-Year Fixed Rate Mortgage
For as low as 30-year fixed rate mortgage rates are in California today, 15-year fixed rate mortgage rates are even lower.
According to Freddie Mac’s weekly mortgage rate survey, the average 15-year fixed rate mortgage rate is now 3.27% nationwide with an accompanying 0.8 discount points. 1 discount point is a closing cost equal to 1 percent of your loan size.
The current 15-year fixed rate reading is just one tick above the all-time, 15-year fixed rate mortgage low of 3.26% set in October 2011.
If you’ve ever thought of “going 15″, it’s a terrific time to talk to your lender.
The primary benefit of using a 15-year fixed rate mortgage as opposed to a 30-year fixed rate one is that a 15-year fixed rate mortgage dramatically cuts the long-term interest costs of your loan. The downside is that monthly payments are relatively large.
At today’s mortgage rates, per $100,000 borrowed :
- 15-year fixed rate mortgage : $704 principal + interest monthly
- 30-year fixed rate mortgage : $477 principal + interest monthly
So, for homeowners opting for a 15-year fixed rate mortgage, the monthly principal + interest payments will be 48% higher as compared to a 30-year fixed rate mortgage of the same loan size. Long-term, however, because the 15-year fixed rate mortgage interest rate is lower and because it pays off in half the time of a 30-year loan, a homeowner will save $45,000 in interest costs per $100,000 borrowed.
$45,000 per $100,000 borrowed is a huge amount of savings. It’s monies that can be used for college tuition, home improvement projects, retirement savings, or anything else.
That said, the 15-year fixed rate mortgage is not ideal for everyone.
Because it requires higher monthly payments, a 15-year fixed rate mortgage may add stress to your household budget. Furthermore, once you commit to a 15-year loan term with your lender, you can’t revert back to a 30-year loan term without a refinance and refinances can be costly.
Therefore, be sure of yourself when selecting a 15-year fixed rate loan. The rewards are great, but the risks can be, too.
5 bright spots in real estate recession
The real estate market meltdown was much more severe and has lasted much longer than even the most bearish housing market observer would ever have predicted. Rather than values taking a dip, they’ve taken a double dip in many places; and the housing sector drama has infected the job market and the entire world’s economy.
Yet, there are some very shiny silver linings to this whole mess — a handful of ways in which our mindsets, habits, behaviors and approaches to money, mortgage and even life decision-making — have been changed by this real estate market debacle. As I see it, here are the five best things about this otherwise terrible housing recession:
1.People now buy for the long term. Even Jeff Lewis, that reality TV house flipper extraordinaire, has declared that he’s tapped out of the flipping business for the foreseeable future, trading in his real estate wheeling and dealing for the design business.
Recently, he mentioned having lost six homes in the real estate market crash. While Lewis flipped homes as his business, just five years ago, many Americans — homeowners and investors alike — took a short-term view on their homes, buying them with the idea that they could count on refinancing, pulling cash out or even reselling them anytime they wanted, at a profit.
Reality check — those days are gone. Now, buyers know they’d better be prepared to stay put for somewhere between seven and 10 years (shorter in strong local markets, longer in foreclosure hot spots) before they buy if they want to break even. And this is causing them to take mortgages they can afford over time, and make smarter, longer-term choices about the homes they buy.
2. Dysfunctional properties are being weeded out and creatively reused. Municipalities like Detroit and Cleveland are demolishing blighted and decrepit properties in dead neighborhoods en masse, intentionally shrinking their cities to match their shrinking populations. These efforts are also eliminating breeding grounds for crime, and focusing resources on the neighborhoods that have a better chance of surviving and thriving in the long term.
In the so-called “slumburbias” of central California, Nevada and Arizona, McMansions are being repurposed into affordable housing for groups of seniors, artist communities and group homes.
3. American housing stock is getting an energy-efficient upgrade. The news would have you believe that every American has lost his or her home, walked away from it, or is now renting by choice. In fact, the vast majority of homeowners have simply decided to stay put.
Instead of selling and moving on up, homeowners are improving the homes they now plan to stay in for a long(er) haul. And this generation of remodeling is focused less on granite and stainless steel, and more on lowering the costs of “operating” the home and taking advantage of tax credits for installing energy-efficient doors, windows, water heaters and more. And while the first-time homebuyer tax credit is a thing of the past, the homeowner tax credits for energy-optimizing upgrades are in effect until the end of this year.
4. People are making more responsible mortgage decisions, and building financial good habits in the process. Buyers are buying far below the maximum purchase prices for which they are approved. They are reading their loan disclosures and documents before they sign them. And, thanks to the stingy mortgage market, they are spending months, even years, in the planning and preparation phases before they buy: paying down their debt; saving up for a down payment (and a cash cushion, so that a job loss wouldn’t be disastrous); being responsible and sparing in their use of credit to optimize their FICO scores; and creating strong financial habits in one fell swoop.
5. Our feelings about debt and equity have been reformed. Americans no longer use their homes like ATM machines, to pull out cash, pay off their credit cards and then start the whole overspending cycle over again. Many can’t, because their homes are upside down and cannot be refinanced in any event — much less to pull cash out.
Others have been reality-checked by the recession, and are dealing with their non-mortgage debt the old fashioned way: by ceasing the pattern of spending more than they make, and applying the self-discipline it takes to pay their bills off.
Home equity, in general, is no longer viewed as an inexhaustible source of cash. Rather, we see it as a fluctuating asset to be protected and increased — not so much through the vagaries of the market, but through the hard work of paying the principal balance down. Many of those refinancing into today’s lower rates aren’t doing it to pull cash out, as was the norm at the top of the market; instead, they are refinancing into 15-year loans to pay their homes off sooner than planned, or reducing their required payment so their extra savings can be applied to principal.
Of course, it remains to be seen how lasting these changes will be if and when home prices go up and mortgage guidelines loosen up. But since neither of these things look likely to happen in the short term, hopefully there’s a chance that these behavior shifts will become part of a permanent mindset reset for American housing consumers.
Fed to Keep Interest Rates Low Until 2013
The Fed said in a statement following its regular policy-setting meeting Tuesday that the overall economy has grown “considerably slower” than it expected and that consumer spending “has flattened out.” Some economists in recent days have expressed concerns that the U.S. is heading for a double-dip recession.
Source: “Fed says it Will Hold Rates Fast Until mid-2013,” MSNBC.com (Aug. 9, 2011)
Fed officials “are very nervous about the economy,” says Mark Zandi, chief economist at Moody’s Analytics. “This is unprecedented for the Fed to indicate they are ready to keep rates low for two more years.”
Still, the Fed continues to forecast a moderate pick-up in growth for the economy in the second half of the year.
Here’s a closer look at rates for the week ending Aug. 4:
30-year fixed-rate mortgages: averaged 4.39 percent, downfrom last week’s 4.55 percent average. A year ago at this time, 30-year rates averaged 4.49 percent.
15-year fixed-rate mortgages: averaged 3.54 percent, dropping from last week’s 3.66 percent average.Last year at this time, 15-year rates averaged 3.95 percent.
5-year adjustable-rate mortgages: averaged 3.18 percent this week, falling from last week’s 3.25 percent average. Last year at this time, 5-year ARMs averaged 3.63 percent.
1-year adjustable-rate mortgages: were the only ones on the rise last week, averaging 3.02 percent this week, which is up from last week’s 2.95 percent average. Last year at the time, 1-year ARMs averaged 3.55 percent.
Long-Term Mortgage Rates Hold Steady This Week
Average interest rates for 30-year and 15-year mortgages were mixed in the week ending Feb. 3, the U.S. Federal Home Loan Mortgage Corp. said.
The average interest rate for a San Diego 30 year fixed rate mortgage rose from 4.8 percent to 4.81 percent with 0.8 points. Average interest rates for 15 year contracts dropped from 4.09 percent to 4.08 percent with 0.8 points, Freddie Mac said.
Rates for San Diego 15 year fixed-rate mortgages a year ago stood at 4.4 percent. Rates for 30-year mortgages a year ago averaged 5.01 percent.
“Mortgage rates held relatively stable this week on news that the economy improved and inflation remained in check at the end of 2010,” Frank Nothaft, Freddie Mac vice president and chief economist, said.
Nothaft noted that the NATIONAL ASSOCIATION OF REALTORS® has said housing in the fourth quarter of 2010 was “the most affordable on record, according to figures … which date back to 1971.”
Looking to buy or sell San Diego real estate? Contact Travis Breton at 760-470-2752 or visit www.SDHomeSource.com
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