Surge in Rates Have a Huge Impact on Housing

According to Bloomberg report, the S&P/Case-Shiller index of property values increased 12.1 percent from April 2012, the biggest year-over-year gain since March 2006, after advancing from 10.9 percent increase last month.  CoreLogic, a company that provides comprehensive data, analytics and services to real estate professionals, forecasted a 13% increase in year over year home prices for next month. 

Low inventory, historic low mortgage rates and an improving job market - combined all that with increasing demand are what drive the home prices up.

Based from Freddie Mac data, the average rate on a 30-year fixed mortgage was 3.93% in the week ended June 20, compared with an average 3.55% so far in 2013. Rates have been going up because the Federal Reserve has warned that it might cut back on buying mortgaged-back securities and end the purchases around the middle of 2014.  If that happens, lenders can possibly, charge higher rates to make the securities more attractive to private buyers.

Home buyers that didn't take advantage of record-low rates have missed the boat.  Fannie Mae's chief economist Doug Duncan said that, "It's unlikely that rates will ever be that low again".  But there's still time to take the opportunity of still historic low mortgage rates.  It might not be as low as 3.31% recorded last year, however, it is still considered low. The table below shows the estimated payments for different mortgage rates.

Home Value	Loan Amount (10% DP)	Interest Rate (30-yr fixed rate)	Monthly Payment	Total 360 Payments	Total Interest Paid	% of Interest Paid to Total Payments
$250,000	$225,000	3.5%	$1,270.77	$457,476.20	$132,726.20	29%
$250,000	$225,000	4.0%	$1,334.60	$480,456.39	$155,331.39	32%
$250,000	$225,000	4.5%	$1,400.46	$504,165.10	$178,571.35	35%
$250,000	$225,000	6.5%	$1,682.57	$605,725.10	$278,162.60	46%
$350,000	$315,000	3.5%	$1,779.07	$640,466.68	$185,816.68	29%
$350,000	$315,000	4.0%	$1,868.44	$672,638.95	$217,463.95	32%
$350,000	$315,000	4.5%	$1,960.64	$705,831.14	$249,999.89	35%
$350,000	$315,000	6.5%	$2,355.60	$848,015.14	$389,427.64	46%
$500,000	$450,000	3.5%	$2,541.53	$914,952.39	$265,452.39	29%
$500,000	$450,000	4.0%	$2,669.20	$960,912.78	$310,662.78	32%
$500,000	$450,000	4.5%	$2,800.92	$1,008,330.20	$357,142.70	35%
$500,000	$450,000	6.5%	$3,365.14	$1,211,450.20	$556,325.20	46%

Avoid paying 46% of your total mortgage payments to paying off the interest. Take advantage of the low mortgage rates NOW!!  The economy is still on its way to recovery, once the economy returns to its robust health, mortgage rates will naturally go up!  If the interest rates keep climbing, then buyers currently in transactions should ask their lender about locking in those rates.  Buyers and sellers need to act fast! Talk to a realtor now, while homes are still affordable. 

Tips for 1st Time Real Estate Investors

In the current growing housing market, many people are thinking of investing in real estate while interest rates remain low.  If you are tempted to try your luck in real estate investing, here are few things you needs to know: 

1. Know What You want! Decide whether you want to be a fixer upper, a buy and hold investor or a flipper. Once you know what you want, you'll know your plan of attack.  In the current market, home prices are going up. The longer you hold the home, the value increases. 

2. Know Your Budget.  Start small and don't invest all your money in real estate. Real estate investing should be a supplement to your existing plans, not a replacement.  People encounter troubles when they invest too much in the beginning, but they fail to recoup it. 

3. Network. There are great investor groups online and in person.  You can get a lot of advice from investor forums online and other investors to help get you started. You will gain valuable information just by consulting with them.

4. Choose Well Maintained Property In A Good Area.  Make sure to go around the neighborhood first before choosing your property. Is it close to schools, shopping, parks or business districts. These are the usual consideration of renters when they look for a home. And should you decide to sell your property, the location will also matter to the potential buyers. 

Avoid homes with high maintenance features, remember that the newer generation of home buyers prefer smart homes to luxury homes.  They prefer small but functional homes than the bigger houses where they need to spend a lot of time in maintaining it.  They would rather spend their precious time with their families or do other productive things.

If you are interested in investing in real estate, please contact me for more information.