Defining a Buyer's Market

November 28th, 2014 by Anonymous

[caption id="" align="alignleft" width="160"] Brandon Johnson, Broker Dickerson & Nieman Realtors[/caption] I am sure that most of you have seen the posts that buying a home is more affordable than renting a home. I would be the first one to support this argument in the current Real Estate Market. But, this is not another article that is going to bash renting and point out the repetitive benefits of home ownership such as tax incentives and defining ownership. I want to explain a phrase that is heard daily in the Greater Rockford Area, a "buyer's market". Before I get into my argument let me share some research that I have found. According to NAR Economist Danielle Hale, the median homeowners have $200,000 in net worth in comparison to the median renter who has $5,000. Also, 75% of first time home buyers previously rented their home. On top of that 83% of first time buyers thought that buying a home was a good investment. I agree that purchasing your first home in a buyer's market is a pronounced investment but I want you to know the situation that our area is in to supplement this point of view. First, I want my clients to understand the significance of a low interest rate. The last few month's interest rates have hovered around 4% on a 30 year fixed rate mortgage. I can assume that any lender or Realtor is telling their clients that they are getting a great rate, which is true. I believe that most first time buyers do not realize how a small increase in an interest rate can affect their financial situation. For example, if you bought a home for $100,000 with a 4% fixed rate on a 30 year mortgage and a 5% down payment, that amount of accumulated interest would be $68,277.53. According to Freddie Mac, interest rates should continue to stay in the 4% range through most of 2015 and ending the year in the range of 4.6% to 5%. Therefore, if we take the same situation with a 5% interest rate the total accrued interest would be $88,593.16, $20,160 more. A low interest rate is important in a buyer's market. If the average consumer is used to high interest rates because of auto loans or credit cards, it would be easy to overlook the significance of one percent. In reality that one percent can save you roughly $50 dollars a month which you could use to pay off your debt with higher interest. Next, NAR reports that 20% of first time buyers bought their home because of affordability. In my opinion, this explains that the other 80% of first time buyers were not educated by professionals throughout their experience. In the Greater Rockford Area many local banks are staffed by professionals that want to help you get into your home. Buyers need to understand that it may take time to get their financial criteria up to the bank's standards. They need to understand the significance of a strong credit score and how it can influence the mortgage interest rate, in relation to the paragraph above. The average first time buyer saved their money for a down payment and built their credit within six months in 2014. Consumers with minimal credit history need to understand it is easier to start from scratch in comparison to rebuilding credit scores. Thus, in our market you could still be on track to purchase a home with a low interest rate in the summer of 2015. Also, consumers need to know that the minimal down payment can be as low as 3.5% of the purchase price. I suggest that you seek advice from professionals before you ask you family or friends. You cannot rely on the internet to generate your credit score and tell you what you can afford. The first step is the most important step, into the office of a professional. Moreover, consumers need to understand how a mortgage will influence your financial situation in the future. In 2014 47% of repeat buyers used equity gained from the sale of their home for a down payment. In conjunction with the purchase of a new home the average 18-34 year old bought a home 47% more expensive and 640 square feet larger than their first purchase. 32% of this demographic sold their first home after owning it for five years. Of course there are many factors that influence the decision to upgrade a home such as family, location, or careers. However, I want to explain how a mortgage influences the three major credit reporting agencies. When a lender pulls your credit history it is not just one score. The three major credit reporting agencies are Equifax, Experian, and Trans Union. The banks look at the median score of the three. They do not average them. Therefore, if you have an auto loan that builds your Trans Union score but not the other two it is not necessarily helping your credit. It is important to understand that a mortgage will influence all three of these scores which will help your financial future. Lastly, another common word used in correlation to the phrase, buyer's market, is equity. Of course the average homebuyer knows what equity is, but they need to know how the future real estate economy influences it. Obviously your monthly payment is going to reduce the principal balance on the mortgage, it builds equity. However, it is important to understand that in a buyer's market people assume that home values will appreciate. Statewide in 2014 home values appreciated 6%. Real estate is local, but the overall growth of confidence in the Real Estate industry will help support appreciation. This confidence supplements the previously stated statistic that 83% of first time buyers see their home as an investment. They are anticipating their first home appreciating while they are still establishing their careers. This also supplements the fact that the average second time buyer uses the equity gained in their home to upgrade into their second purchase. Now you can understand why the average net worth of home owners is over thirty times more than the average renter. The purchase of your first home will be an asset for your financial future. This is why I think a buyer's market should influence first time buyers to develop a plan to leave the renting market. Defining a Buyer's Market - Rockford, IL and Greater Rockford Area by Brandon Johnson, Broker - Dickerson & Nieman Realtors 11/28/2014 [caption id="attachment_1017" align="aligncenter" width="600"] Provided by Jessica Rielly, Mortgage Lender, Stillman Bank. jessicar@stillmanbank.com
*For informational purposes only. Rates and terms subject to change without notice. For use by Real Estate Professionals only. This is not an advertisement to extend consumer credit as defined by Section 226.24 of Regulation Z.[/caption]

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Tags: dickerson nieman, rockford real estate, interest rates, home buyers, dickersonnieman.com, Rockford Realtors, Brandon Johnson Realtor, First-time Homebuyers, Buy or Rent?, Buyer's Market, Credit Score, Defining a Buyer’s Market, Greater Rockford Area, Jessica Rielly Mortgage Lender, Stillman Bank

Defining a Buyer's Market

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