A Math Problem

Currently 30 year fixed mortgage interest rates are at about 5.000%. I’m pretty sure that we will see interest rates rise this year to the 6.000% range. So I did the math and this is what I found out what could be purchased at Marina Towers.

$1,000.00 per month will get you $186,281.62 in purchase money at 5.000%
$1,000.00 per month will get you $166,791.61 in purchase money at 6.000%

This equates to a net loss of $19,489.99 in purchase power. That’s 10.5%!

I don’t think we will see housing prices drop an additional 10.5% from now. It’s time to get in while the getting is good.

We cannot predict when condo prices at Marina City will hit bottom or if they already have, but most can agree that interest rates are steadily going up from here. Think about how rising interest rates limit your home buying power.

Robust rental market on the horizon?

Prospecting for new landlord clients today, I was surprised by the lack of FOR RENT signs on the two & three flats in North Center and Roscoe Village in Chicago. Usually this is a great time to prospect for new rentals because landlords are much more motivated to work with agents to get their places rented.

Perhaps the premise behind this article has something to do with it.

It is looking more and more like the rental market is starting to see a turnaround. I think that is good news for landlords throughout Chicago. This should also inspire those prospective buyers to consider purchasing. With the availability of bargain priced properties and historic low mortgage rates, now is the time.

The difference 1% makes

Although it may seem small when first mentioned, one percent can result in a big change. This came to mind recently when speaking with a buyer about mortgage rates. She was concerned that home prices had not bottomed out yet and wanted to make sure she waited until the right time.

The question of when is the bottom of market or when is the best time to purchase are hard to answer. The following example about mortgage rates really provides something to think about. Specifically, buyers do not ultimately live with their purchase price. The only time purchase price comes into question again is when the buyer sells their property.

I am not advocating that buyers be unconcerned with their purchase price. I am saying that mortgage rates play a much more important role in housing affordability and what qualifies as a great deal.

Take these three mortgage rate examples. All are based on a loan amount of $250,000 and a 30 year conventional mortgage.



$250,000 @ 5% = $1,342/month payment
$250,000 @ 6% = $1,498/month payment
$250,000 @ 7% = $1,663/month payment

Consider this payment over five or ten years and you really have some significant savings. If you add in the possibility of inflation in that time, you are really ahead. With the way the US government is printing money and taking on debt, the buyer is going to be paying back that mortgage with dollars that are only worth 80% what they are worth today several years from now.

Why buy real estate now?

Going to and from appointments I am often asked many questions. “Are people buying?” “Is it a good time to buy?” People hear the news and are genuinely curious.

Here are two great articles about the state of the market. In the Forbes article, it explains the role of demographics and housing affordability in different markets that will be shifting our market upward.

In this Marketwatch article, there are 10 great points for buying a home. My two favorites are low mortgage rates (less than 4 3/8 % on 30 year fixed loan) and very good home prices. Never in our lifetimes will we have low home prices AND low mortgage rates. There have been times when we have had one, but never both together. I’ll guarantee you’ll never see it again while you’re alive. We’ll be kicking ourselves in five or ten years saying, “why didn’t I buy that place in 2010…”

On July 15, 1979, President Jimmy Carter gave a nationally-televised address in which he identified what he believed to be a "crisis of confidence" among the American people. At that time as well as now, the confidence index was the same. With more people believing that their children would be worse off than they were. During Carter's administration, the economy suffered double-digit inflation, coupled with very high interest rates, oil shortages, high unemployment and slow economic growth. Does that sound familiar? If we take a moment to ponder what the US economy & real estate did through the 80s & 90s, we can see what a tremendous opportunity that time period was.

That is the kind of opportunity we are presented with now.