Homes in Los Angeles Just Got $180,000 Cheaper
Home buyers in Los Angeles did not had it easy in 2018. First they had crazy competition from all-cash foreign buyers, then we say bidding wars driving prices beyond appraisal values, then we saw a trend of buyers pulling all contingencies the final kick in the pants was the jump in interest rates to the edge up to the 6% mark.
These extraneous factors caused buyer fatigue that put many homebuyers on the sidelines. The end result: a dramatic drop in home sales for the fourth quarter of 2018 in LA County. Plain and simple, the market reached it’s limit.
The benefit to all of this was a shift into buyers favor. We saw more homes come on the market and stay longer, we saw a drop in the average price homes were being listed at and best of all, mortgage rates dropped into a more manageable level.
While this drop in mortgage rates is only a couple percentage points the results over a 30 year mortgage are massive. Lets see some examples:
To make this apples to apples let’s assume a couple standard things: The buyer is buying a house and not a condo with a monthly HOA payment, the buyer has good credit (720 FICO), downpayment is 20% and no mortgage insurance is needed and the buyer is going to use a 30 year fixer rate mortgage.
House Price: $675,000
Loan Amount: $540,000
Mortgage Rate A: 5.25% Monthly Payment: $2,982.00
Mortgage Rate B: 4% Monthly Payment: $2,578.00
The Difference: $404.00 Monthly, $4,848.00 annually
$145,440.00 over the 30 years of the loan.
House Price: $750,000
Loan Amount: $600,000
Mortgage Rate A: 5.25% Monthly Payment: $3,313.00
Mortgage Rate B: 4% Monthly Payment: $2,864.00
The Difference: $449.00 Monthly, $5,388.00 annually
$161,640.00 over the 30 years of the loan.
House Price: $850,000
Loan Amount: $680,000
Mortgage Rate A: 5.25% Monthly Payment: $3,755.00
Mortgage Rate B: 4% Monthly Payment: $3,246.00
The Difference: $509.00 Monthly, $6,108.00 annually
$183,240.00 over the 30 years of the loan.
The savings only goes up the more house you buy, and because your payments are less you can now qualify for a larger loan amount (you can buy more house now).
It is easy for homebuyers to focus on the sales price of a home, thinking of what your monthly yield for a mortgage payment will give a better sense of the kind of home you will be comfortable in. The lowering of mortgage rates changes this dramatically in favor of buyers in 2019.
The future of rates is never set, the experts say we should not see an increase this year. Do I trust that? No. Do I know it’s low now and there are more inventory choices: Yes. Is now the smart time to buy. You bet it is. Remember, that rent you pay will never appreciate in value. It will always be a 100% loss.
REALTOR®-Compass Real Estate
Michael Robleto is a Pasadena and Downtown LA focused REALTOR®. Home buying and home selling is extremely challenging in Pasadena and LA. Michael uses an analytical and data driven approach help solve for the many problems that arise in real estate sales. His client accolades of insight, integrity and hard work support the fact that he is not your average agent.
Michael leverages his personal passion for historic architecture to provide his clients the unknown insight on the pros and cons of older homes. Michael, a California native, grew up in an older Bungalow home and has spent 23 years in Southern California admiring the unique architecture of the region. He often writes on homeownership strategy, historic residential architecture and related topics which can be found on Facebook, YouTube, Twitter and Instagram under the common profile name of his blog; BungalowAgent or at www.BunaglowAgent.com/blog.
Michael is a committee member and frequent volunteer for the preservation efforts of Pasadena Heritage as well as a supporter of the Five Acres center for children.