A couple forces will in a little while will soon affect property valuations in U.S real estate markets; rising interest rates and/or inflation. Should higher interest rates and the threat of inflation stop you from buying now?? Just the reverse and here's why. Interest Rates - When you acquire real estate today and tie up a mortgage with a 5% mortgage interest rate then you are enjoying roughly the hottest mortgage rates in the history of modern lending. Everyone knows, these are fantastic mortgage rates. And IF interest rates get worse, your interest rate stays the same So, In the even rates increase to 8%, 9%, 10% or higher (bear in mind mortgage rates were 12.75% in 1984) you'll be stylin'. Also, let's say you have a certain amount to spend each month for your mortgage. If you buy now and enjoy the fantastic rates then a lesser amount of of the monthly mortgage payment will go to mortgage and a greater portion of your monthly payment goes to the "real" property itself. Get more house and less loan. Pending Inflation - If US home buyers double digit inflation (10% or greater) consumers would have been wise to have taken advantage of our current property prices rather than postponing. With inflation, the value of a dollar goes down. With inflation the value of merchandise increase because the value of the dollar goes down. If inflation is ten percent, merchandise will be worth ten percent more. For example a high rise condo that is worth $250,000 today will be worth $275,000 during a time of ten percent inflation. So, during inflationary times, while your dollars drop in value, homes and many products (groceries, {gasoline|petroleum|oil|coal|, energy, gold, etc...) rise. With homes, the value of your money is "preserved" but with cash the value of your money is nowhere to be found. BONUS, The Clout of Leverage - OK, let's presume you secure the $250,000 piece of real estate mentioned above and obtain an 80% mortgage to do so. In other words you come in with $50,000 cash for the down payment and borrow $200,000. For the duration of a 10% inflationary period the realty would be worth $275,000 a year after you acquired it; $25,000 more than you paid. And remember that you only spent $50,000 to buy the condominium and have the benefit of the $25,000 gain So while folks who did not buy are losing 10% on their money every year, you'll be enjoying 50% growth!! EXTRA BONUS - Repay Your Loan With "Weaker" Dollars - Ultimately, if the worth of the dollar is lower thanks to inflation AND you have a fixed interest rate loan, then you are repaying the bank back with "cheaper" dough. As we mentioned above, it might cost $1 to buy a loaf of bread at the moment but during ten percent inflation the same loaf will cost $1.10 because the dollar is not as valuable as it was a year earlier. So, when you make a mortgage interest payment during 10% inflation, those dollars are worth 10% less than they were a year prior. Like I said above, no one knows for sure if mortgage interest rates will bounce up or if we will see high inflation. However, with mortgage interest rates being so historically low, then odds are they will go up. Keep in mind, interest rates in the early 1980's were in the very high teens, yeah like 18%!!! People, if you can borrow now at 5.25% or less then for goodness sakes do it! If we do experience inflation then you'll be really glad you bought sooner instead of later. The amount of homes and condos selling in Phoenix and surrounding towns are way up, dollar amounts seem to have adjusted, there are still hefty tax credits for many buyers, there are still tax benefits for real estate owners and IF interest rates and/or inflation transpire, folks who buy now will be glad they did. I have authored a number of blog posts about the challenges in the real estate market Nonetheless, I do believe in the fundamentals of economics and when the market starts “making sense” I am not afraid to share that to boot. Real estate is beginning to make sense again. Contact We Know Urban Realty to learn where we believe are the best deals and why.
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Real property prices are much cheaper, mortgage interest rates are very low and inflation is at a reasonable level for the time being. As these three things commence to change you will wish you had bought a lot more houses and condominiums.
The real estate agents of We Know Urban Realty LLC specialize in the sales and marketing of high rise condominiums, brownstones, loft condos and row houses in Phoenix, Scottsdale and Tempe. Will Daly has specialized in the Phoenix High Rise Condo market for over thirteen years.
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