A Very Interesting Market

2012 has kicked off with some very interesting trends in the market, one in particular being our current interest rates. If I haven’t driven this home enough already:


Let’s look at just how low that actually is.

Current interest rates on 30 Year Fixed Conforming Loans up to $417,000 are 4.0%.

In 1974, when I was born, interests rates were at 9.0%.

When Ronald Reagan took office in 1981, they were at  20.5%.

In 2003, when the prices were relative to what they are today, interest rates were at  5.88%.

So, what exactly does this mean? Let’s take a closer look at that last statement, since it is the most recent, and the most important one, as it best illustrates the difference between “cost” and “price.”

The average home “price” is now back at 2003 levels, and has been bouncing around this level now for a year or more. Bottom line, we have bottomed out. But the major difference between 2003 and  today is the “cost” to purchase a home.  In 2003 interest rates were 5.88%, whereas today, rates are hovering 4.00%. So, if you apply the difference in payment on a home purchase price of say $250,000, the difference in interest rates equates t0 $285 A MONTH. Over 30 years, this amounts to $102,600 in extra payments. In other words, the $250,000 price tag of the home is the same, but you will save $102,600 over the life of the loan by purchasing this home today vs 2003! Same “price.” HUGE difference in “cost.”

Let’s look at this one last way. Go ahead and grab your last credit card statement and look at the APR (Annual Percentage Rate). That is the percentage of interest they are charging you on your balance. Seriously,… please go find a credit card statement. Any of them. All of them. Please, for my sake. I have a flair for the dramatic. I’ll wait….

Got it? I guarantee it’s not below 4.0%.

In fact, I’d wager most of you out there are staring at double digits somewhere between 14.0%-30.0%.  My CapitalONE card says 22.9% YIKES! But this is how banks make money, by charging interest.

So, pop quiz: Based on what you just learned about interest rates, which bank wants/needs your money the most? If you said the Federal Reserve, you’ve been doing your homework.

Currently a 30 Year Fixed FHA Loan up to $729,750 is being offered at 3.75%. WHAT A BARGAIN!!! The Federal Government needs your money SO MUCH they are willing to offer you these rock bottom rates that edge out a conventional loan, if you will just invest with them instead of a conventional lender. On top of which, the standard down payment on a conventional loan is 20% down of the purchase price. For an FHA loan, it is only 3.5%.

Alright, I’m done with my interest rate spiel. If I haven’t gotten through to you with that speech, I’m not sure I will. So here is Warren Buffet on CNBC this morning (Feb. 27th) telling everyone “I’d buy up “millions” of single family homes if it were practical to do so.”

If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks, and advises buyers to take out a 30-year mortgage and refinance when rates are down.

Rates are not going to 0% and I cannot fathom seeing them going any lower than they are right now. So, you make the call… 310-722-5959. 😉


Lawrence Chaves

DRE# 01893036

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About Lawrence Chaves

Lawrence Chaves Keller Williams Beach Cities BRE# 01893036 Member of the South Bay Association of Realtors, California Association of Realtors, and National Association of Realtors. Specializing in residential and income properties in the South Bay and Beach Cities of Los Angeles County. 1st time buyers & new to the South Bay are welcome. Taking appointments now. 1601 Pacific Coast Hwy Ste. 265 Hermosa Beach CA 90254 Phone: 310.722.5959 Email: LJChaves@gmail.com Website: http://lawrencechaves.kwrealty.com/
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One Response to A Very Interesting Market

  1. Pingback: Step 1: Stop Dragging Your Feet | LA Real Estate 101

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