In this update, I crunch some numbers on buying versus renting. You’ll be surprised to find out how much you can save by buying. I also talk about the current housing inventory and interest rates and give my estimates on the market outlook over the next 12 months.
Now is the time to think about making the jump from renter to owner. It’s also a good time to be a property investor. So don’t hesitate to reach out to me. I have affordable mortgage options for first-time home buyers, property investors, and everyone in between.
Video Transcription
Hi, it’s Chris Lamm with Commerce Home Mortgage. Thank you guys for watching this month’s market update. It’s the month of May. We are going to talk about a couple topics.
Jumping right in here, we want to talk about the housing market. We have a lot of clients … it’s 2017, and we’re seeing a very similar spring that we’ve seen over the last couple years, where there are just not a lot of homes on the market. Here in Redding right now, there is some of the lowest inventory we’ve seen in a long time and we still have a lot of clients that are getting beat out on multiple offers on properties. One of the statistics that I just recently saw: year-over-year, nationwide, purchase applications are up 5%. Even with rates being up higher than they were last year, we’re still seeing a lot of steam in the housing market. Basically, what it comes down to is a shortage of homes. In California especially, we’re seeing a massive shortage of homes and what that means is there are more people entering the market than there is homes available to meet that demand.
One of the very interesting things I have noticed is that that exists with people who are trying to rent properties, too. We have a lot of clients that are buying investment properties and renting them out, and I’ve got a couple different property managers that I work with. One of the common things they are telling me is they just don’t have enough homes to meet the demand of people who are trying to rent properties right now. People that are buying investment properties are getting top dollar for the rental market and it is really, really interesting. Going forward the rest of this year, most experts are predicting that this current housing market is going to continue to pick up steam and remain very tight and tough for people in that 220 to 300 range to find houses. They are finding houses, but it’s just not as easy as it used to be.
The other thing I want to talk about … I do this generally once a year. I want to pull up a slide and talk about the benefits of renting versus buying with today’s market. What I mean by that, is I’m going to talk about … this is with today’s price being higher than it was three, four, even two years ago, and today’s interest rates being slightly higher.
If you check out this slide here, we’re going to focus on the top left quadrant here. We’re going to use today’s average purchase price in Shasta County and the average rent that somebody is going to pay for a very similar house. If you look on the left here, today to buy a house in the $280,000.00 range, which is kind of the average price, it’s going to cost you about $1,686.00 a month, including taxes and insurance. That same house, three bedroom, two bath, average square footage, ten years old or so, is going to rent for around $1,500.00 a month.
If you go straight across to the right, you’re going to see that nine years from now with the current rental appreciation rate, that same house is going to rent for $2,073.00, which means in nine years you’re going to pay $10,500.00 more to rent that house than you would have to own it and lock into a 30 year fixed.
If you drop down a little ways down here, we start on the left. That’s almost ten years from now. That’s a $280,000.00 house. The equity through amortization, which means the loan amount that you have paid down in nine years, will net you another $45,000.00 and the tax benefits, to the right here, assuming a 25% tax bracket, is going to save you almost $30,000.00 in tax dollars. Either you would get that back in nine years in refunds, or if you owe at the end of the year, this would be the tax benefit to you owning a house and being able to write off the interest, etc. That’s a really big deal.
If you take a look at this, over nine years, someone that buys nets about $177,000.00 over renting and they are locking in their payment that’s not going to change for 30 years. It’s really interesting because we still have people ask us, “Hey, what does it look like to buy today? I know prices have come up. I know rates are higher.” Well, this kind of tells us right here that it’s still a very, very good idea to buy.
The last thing we are going to update on is interest rates. Right now, rates are running between four and roughly four and a quarter percent, depending on the type of loan you’re doing, how much money you’re putting down, etc.
This week, being the first week of May, is a big week. The Federal Reserve is going to have their minutes this meeting. We still have some global news that’s having an impact on both stocks and bonds, which affect mortgage rates, with the Korea situation, with president Trump’s tax reform and his doings with NAFTA … all of these things are having an impact on the stock market and the bond market, which is what changes rates. No one really has a crystal ball, but what we predict is that rates are going to stay right around where they’re at and they’re going to continue to slowly go up over the next eight to twelve months, putting them in possibly the high fours by the end of the year.
If you haven’t bought a house yet, if you’re thinking about refinancing and taking some cash out to do a remodel or something like that, you might want to make sure you take a look at the numbers right now.
Other than that, we really appreciate you guys. Thank you for taking a look at this month’s video blog. If you guys have any questions, you know you can call me any time.
Have a great day.