Move Up and On

Recently, we sent out a chart to our agents of interest rates by the decade.  Rounding off, they are now about half of what they were in the 70s and 90s, and a third of what was common in the 80s.  Given another chart, showing how long people have stayed in their homes before moving, it's worth pointing out again how much of a difference in the true cost of a home the mortgage rate can make.

Many boomers I know are chagrined to find that, even if their downsized home is actually smaller than the home they left (and you would be surprised to find how often it is not!), they almost always spend just as much buying the new home.  However, rates are still so low that we should think of it as buying "up" at a great cost, in much the same way that we might spring for Premium Economy or Business Class on a plane, if the differential is very reasonable.

While spending more on finishes and extras is a luxury, it will eventually increase the resale value if you make a home modern in the way that buyers down the road will expect.  That won't work if it's too personalized, but many currently trending add ons are well worth the price, and, at these interest rates, may not cost as much as they would have cost in a different decade.

So, the message?  Move up and move on.  Buy what you can afford, and don't forget what you are saving in interest costs, as well as common savings on landscaping, gas (being closer in toward a town center saves money and time), and utilities (modern appliances save energy).  Think of it as Business Class at a Premium Economy fare rate, and go for it!

Renting in Connecticut? Think again.

A new study has concluded that Connecticut is one of the most expensive states in which to rent, making it a place where people should definitely consider buying instead.  Our vacancy rate for rentals, particularly in New Haven, is one of the lowest in the country, and that, of course, pushes monthly rental costs up. Because our housing prices in general are 20% below where they were in 2006, there are some relative bargains still to be had on the buying front.  The combination of a rapid rise in monthly rents, combined with a still-depressed purchase market, means that renters should think before deciding not to buy.  And, if you combine those facts with current mortgage rates, they should think twice!


Although there are many articles that warn against buying unless you are going to stay put for several years, the combination of factors above would argue that that length of time might be shorter.  If you happen to get really lucky, appreciation on the home price could pay all of the moving costs and more.  There can definitely be valid reasons to rent instead, but everyone now should be doing the math before making up their minds.

Housing and the Federal TARP money

People all want to refinance or take out a new mortgage at the bottom of the market. Well, I wasn't sure before, but, based on what I've learned about the government's stimulus program, the time to get a mortgage is NOW. It turns out that the TARP money being given to banks isn't free. In the same way that the first-time homebuyer's tax credit sounds as though you don't have to pay it back, the TARP money has been characterized as a bailout, leading us to think that the banks are being granted the funds. But we were wrong--they have to pay it back, with 5% interest for the first number of years, and 7% interest after that.

So, while I previously thought that interest rates would just keep being forced down until people bought real estate, I now think we're at--or even past--the rate bottom. If a bank has to use money that it's paying 5% for, how many loans can it make for less than that, or even for the same amount, without incurring losses? In our WP mortgage joint venture with Webster Bank, we've seen rates, which had been at 5% with no points for a 30-year fixed mortgage, start to creep up. That now makes sense to me, and it's a call to action.

As I've said before, what you pay as a mortgage rate will matter more on the margin than what you pay for the property, so, if you have the money to buy a new home, buy it now! By the time you realize that rates are heading up, they will be higher yet.