To spark growth, the Fed is aiming to keep the influential rate at which banks lend one another money between 0 and 0.25 percent, and it expects that number to be “exceptionally low” until at least mid-2015. “This is unprecedented!” says Baltimore financial planner Tim Maurer. “We’ve never had such low interest rates for such a long period of time.” Buying a home? Why not now? Rates are at a 40 -year low, so lock your mortgage in with a fixed rate now. Interest on a 30-year fixed was 3.5 percent in January. FHA loan rates in May 2013 were 3.125 percent for 30 years and an incredible 2.375 percent for 15 years.
Ed Whitacre, former CEO, AT&T and General Motors, in his new book, American Turnaround, states that “good managers know that change is the only constant in business.” I feel that this can be applied to investing as well. To think that interest rates will remain low for years to come is to forget about what history has shown us.
1980s United States mortgage interest rates reached 18 percent, making it difficult for buyers to afford a home. Today, that monthly payment would give you at least three times the purchasing power. A home purchased for $100,000 in the 1980s would have the same payment as a home that is purchased for over $300,000 with today’s low interest rates.
Appreciation: Often the silent benefit. A 10-percent appreciation on a $100,000 home would mean that it is worth $110,000. Likewise, if you purchase a $300,000 home and it appreciates 10 percent, then you have made yourself $30,000. Not all areas appreciate. It is important to look at various factors school districts, crime, traffic, conveniences around you and the condition of the homes in your neighborhood. Another source for finding areas that appreciate is to ask your Realtor.
Often buyers will buy “because it is a good deal” without regard to various factors that will not add to the appreciation of their home. Sometimes areas with many rental homes do not appreciate in value. Right now we are in a great market for rentals. Prices are very high. I often wonder why someone would pay thousands of dollars a month on a rental when they could own a home or condo. Judy Barnes and I have purchased over 40 homes and have learned how to purchase in areas that are appreciating. We know the formula that works best for us. My feeling is that “you need to make money on the buy.” You need to buy right. If an offer is not accepted, then I move on.
Often these homes need work — I am not afraid of work. The more, the better. Several of my buys have doubled in value in just a few years. Others have increased only 10 percent — who cares? It is free money! Most buyers base decisions on their family needs. Some buyers put investment and appreciation as their main goal. The two can overlap, but not all the time. Family needs are very important. You want your family to be comfortable in that four- bedroom home with hardwood floors and a master bedroom that is downstairs.
It makes no sense to purchase something that does not work for the family because it is a “deal.” Paying a fair price for a home that meets your needs is what an agent can help you with. You should get an appraisal and an inspection, which will satisfy your decision that you are getting a good home for the value you are paying.
We are fortunate to live in San Antonio. We should be proud to live in an area that is thriving economically. A city that has great leadership actively pursuing locating new companies to our area. Eagle Ford is a major generator to our economy. San Antonio is affordable and attractive. The saying “History repeats itself” is also to say that “people forget about history.” Interest rates will rise again to much higher levels.
When they do, buyers will think back to 2013 and wish that they had taken advantage of buying a home when the rates were the lowest in 40 years. Written by John Hess, a real estate agent with the Phyllis Browning Comapny and he can be reached at (210) 824-7878.
