It's Monday morning once more, and results of June's real estate performance are a day away from being published. So, before all of the numbers come in, we'd like to give you already some points of reflection. Last week, we urged you to list your property this month to get the "most" out of it in terms of listing price; this post will discuss its inverse. Particularly, it speaks to buyers out there mulling on investing in Boston in the next couple of months. We're here to give you inside tips on why your hunch is right in such that you'll need to put in money into the market in the next five months and why, despite what will seem to be an uphill challenge given rising interest rates and home prices, it's still the most ideal time to buy. Here's why:
HOME PRICES ARE STILL OFF THEIR HIGHS
Yes, home prices are rising from the lows seen during the housing crash of 2008, but they're still nearly 20% off their mid-2006 peak. According to the S&P/Case-Shiller Home Price Index, average U.S. home prices are currently at summer 2004 levels. In markets that are still recovering, first-time homebuyers could see significant appreciation over the next few years, if they buy now.
Interest rates are slowly climbing, and as the Federal Reserve concludes its economic stimulus plan, rates are expected to continue to rise. Some experts believe mortgage interest rates could hit 5% by the end of 2014 or the first quarter of 2015. And even a small bump in interest rates can mean a significant jump in your monthly note.
For example, if you're offered a 4.2% interest rate on a $400,000 mortgage, your monthly payment will be $1,961, and you'll pay more than $300,000 in interest over the loan's 30-year term. However, if your interest rate were 4.9%, your monthly payment would jump to $2,115, and the total interest paid over the life of the loan would exceed $360,000.
There is always an argument to be made regarding whether to buy or rent. It's all a matter of your particular situation - as well as the status of your local housing market. If you need to be mobile -- prepared for job transfers or out-of-state promotions -- or are continuing to search for "the perfect place," renting is probably right for you.
However, if you would like to put down some roots, and rents are high in your hometown - it might be cheaper to buy. In Boston, it's cheaper to buy a property than to rent one if you're planing on staying in the city for an average of 3.5 years. Any longer than that and you're already beyond the threshold. That's when you really should consider buying.
To calculate for yourself and make things easier, divide the list price of the home you're interested in by the annual rental rate of a comparable property to determine the price-rent ratio. If the result of that calculation is below 20, then signs point to now being a good time to buy. Of course, buying a home means more than a mortgage. Remember to consider the other built-in expenses: maintenance, insurance, taxes and utilities. But also do keep in mind that the equity you'll get from buying is far greater than these miscellaneous items.
Americans have been steadily reducing their debt load. Hopefully you have, too. The lower your debt, the higher your buying power. Creditors will consider your debt-to-income ratio - how much debt you have, compared to your gross (before-tax) income. The general rule rule of thumb is that you can spend between 28% and 36% of your gross income in total debt service - that's your housing expenses plus your other debt payments.
WITH LOWER DEBT COMES A HIGHER SCORE
As you pay off student loans, credit cards and consumer debt, your ever-important credit score will improve. And that's one of the biggest factors mortgage lenders consider when determining the interest rate and terms of your loan. You should definitely consider buying this year, because it's unlikely the housing market will look much rosier next year, when interest rates and home prices could be even higher.
Contact us now to schedule a risk-free consultation! Preview choice properties on the market for your taking! Call (617) 505-1781 or email us at firstname.lastname@example.org now