BOTTOM OF THE MARKET? ARE WE THERE YET?
Yes. With interest rates at phenomenal lows and price devaluations as much as 50% over the past four years, we are poised for the upturn we’ve been waiting for, at least at the lower end of the market where first-time-buyers and renters-who-are-hoping-to-become- owners are circling like so many skittish bluegills around a baited hook.
Consider this: a modest California home was valued at $450,000 four years ago. Now it enters the market for $259,000. Glory Hallelujah! It has reached that divine point at which it has become affordable. It now makes more month-to-month budget sense to buy that home rather than pay $1300 a month in rent for a comparable property.
At full price ($259,000) with 10% down ($26,000) with a loan balance of $233,000 at 6% amortized plain vanilla for 30 years the monthly cost is:
$1397 Principal and Interest
281 Property Tax (figured at 1.3% of purchase price)
$1753 Total PITI
Subtract a conservative 33% return ($461) for the annual mortgage interest allowance from the PITI:
$1292 Net PITI
So, instead of paying $1300 a month in rent and throwing their money away, making the landlord rich, the first time buyers now pay $1292 a month, save eight bucks, and, for crying out loud, own their own home!
These are the real estate fundamentals that make sense to me. Nothing hopeful, speculative, or subjective. Just plain dollars and sense!