Why It Costs More To Wait

Today the Harrison Group sits down with Mortgage Mark from Home Bridge Financial Services discussing the topic of ” Why It Costs More To Wait “. Tune in to learn more about it !

Speaker 1: Hi, this is  the Dallas Native Voice, and I’m sitting here today with Mark Pfeiffer, Mortgage Mark. Tell me, I know you have a crystal ball, so I hope you brought it today, because what I want to know is I’m hearing about rates going up, and it’s just, you know, is it chicken little with its head cut off? What’s our deal here? Is it really going up, is it rumor?


Mark Pfeiffer: You know what, unfortunately the crystal ball’s good when you look in the past, and I’ll tell you right now it’s the end of February 2018, and just in the first part of 2018, rates have increased almost half a point.


Speaker 1: Wow. Half a point equates to quite a bit in buying power, doesn’t it?


Mark Pfeiffer: It sure does. So here’s the reason why, because a lot of folks will say “The rates are going up this much, why is that? What do you think they’re going to be,” again, the crystal ball.


Speaker 1: Right, don’t we all wish we had that.


Mark Pfeiffer: Mine’s in the shop right now.


Speaker 1: Mine has too much dust on it, so.


Mark Pfeiffer: There we go.


  So having said that, what people don’t know is again rates have a lot of variety of factors that play into the market and what that is. Well, right now the FED has said in December that they’re going to buy $4 billion less of mortgage backed securities a month. So think of that, $4 billion less, they cut their spending of buying the mortgage backed securities from $24 to $20 billion. And guess what, they’re about to do it again next quarter, and next quarter, and next quarter.


Speaker 1: Driving those rates up?


Mark Pfeiffer: Supply and demand. Suddenly there’s less demand in order to make the mortgage backed securities, the bonds, things of that nature, you’ve got a higher interest rate for return for an investor to want to get to purchase them.


Speaker 1: Got it.


Mark Pfeiffer: So rates are projected to go up, how far, how fast, don’t know, but, again, you go from what was a low threes for mid fours rate in just two months, you’d be looking to say maybe they’re going to hit that 5% by the end of the year.


Speaker 1: Wow. Well I think it’s interesting, and what people don’t realize is what it’s costing them to wait, because some of my clients didn’t buy last year for whatever reason, maybe they didn’t have all their credit together, or whatever, or they just chose to get out of the market because it was very competitive, as it is now. But if they wanted to get a $200,000 loan, which not necessarily the sales price, because of course you’re going to put some money down there, but if a loan amount was $200,000 at 3.5% which is about what it was this time last year, that payment would’ve been about $880 a month, just principle in interest.


Mark Pfeiffer: Right.


Speaker 1: That same house, or that same loan of $200,000, and I saw rates are what, 4.5% right now?


Mark Pfeiffer: [inaudible 02:29] about 4.5%


Speaker 1: So that same loan is now costing £1,114 a month, so it’s already gone up that much in just waiting. And we all know, prices aren’t going down, they’re going …


Mark Pfeiffer: I was going to flip the script, right, so obviously interest rates go up and it hurts your purchasing power.


Speaker 1: Right.


Mark Pfeiffer: You’re either going to pay more monthly for the same house, or you’re going to translate that to maybe buy less of a house, to keep that $880 payment to whatever your objective was. You’re going to lose about $25,000 in purchasing power when you do that, so I’m going to ask you, the Dallas Fort Worth market over the last year, what was the appreciation?


Speaker 1: It was about 12% last year all total, and it’s pretty consistent 6 to 8% year over year for a really long time. Last year it really took an incremental jump. So to be able to even find a house for a $200,000 loan amount is … it’s gone up, so not only are our interest rates going up now, but now house prices are going up.


Mark Pfeiffer: Right.


Speaker 1: So we’re not going backwards on either one of those, and so the cost of waiting is pretty substantial.


Mark Pfeiffer: Absolutely.


Speaker 1: And of course people have to qualify for that amount, and so with each point that goes up, you lose that qualifying power, right?


Mark Pfeiffer: Absolutely, so again, a lot of folks were saying “Okay, I’ll wait till something happens, something external.” They’re [inaudible 03:50] I’m not going to tell somebody they have to buy, but again you equate the loss of purchase power because or interest rates, 25 grand. A $200,000 house today with double digit returns means $220,000 tomorrow.


Speaker 1: Right.


Mark Pfeiffer: So again, the same house gets more and more expensive, but from a financing standpoint, and from a purchase standpoint, it’s really money.


Speaker 1: And I’d like to say that renting is cheaper, but all we’ve seen are rents going up just like our house prices have.


Mark Pfeiffer: Absolutely.


Speaker 1: So it’s not like renting is any better, or easier for everybody. So the cost of waiting is substantial, so to find out more about this you can find us on our website at dallasnative.com, and we are where you are, so all our social media sites are available, and see what we’ve got going on here. Thanks for listening.


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