Posted on May 15th, 2012
Over the past several months, it has become somewhat clear (insert gigantic grain of salt here) that home prices may have bottomed last year, at least in some areas of the country.
While it’s still too early to say so definitively, it looks like some homes were snatched up at rock-bottom prices a year ago.
These same homes are now valued quite a bit higher, and recent comparable sales are backing up the numbers.
Of course, some are also calling it a “mini bubble,” otherwise known as a fake recovery, spurred on in part by the record low mortgage rates.
But only time will tell…[Tips for first-time home buyers.]
You Missed the Bottom
Perhaps you’re kicking yourself, thinking you could have purchased that same house for a lot less a year ago.
Yep, you were all set to time the bottom, and seemingly out of thin air, it came and went, and you were none the wiser.
How did that happen? You were watching home prices on a weekly basis, looking at recent sales, surveying market conditions. How could you have missed it?
Well, they always say that timing the market bottom is near impossible, partially because you only know it has actually hit bottom when it’s too late.
So did you mess up? Did you miss your chance to get the steal of the century? Not quite.[Are mortgage rates negotiable?]
Have Mortgage Rates Bottomed?
For much of the first half of 2011, mortgage rates on the popular 30-year fixed stood around 4.75%.
While this may have seemed like the “bottom for mortgage rates,” they now sit around a percentage point lower, which most people would have never guessed in a million years.
That’s right; today you can snag a 30-year fixed for around 3.75%, which is pretty much unheard of.
And who knows, rates could fall even lower over time, though the more they drop, the less upside there is for lower rates.
You certainly shouldn’t bank on rates slipping any lower because then you’re falling into the same “timing the bottom” trap.
All that said, let’s do the math to see what the difference is using a real world scenario, assuming the home buyer is putting 20% down.
2011 Home price: $475,000
2011 Mortgage rate: 4.75%
2011 Mortgage payment: $1982.26
Total interest paid: $333,613.60
2012 Home price: $520,000
2012 Mortgage rate: 3.75%
2012 Mortgage payment: $1926.56
Total interest paid: $277,561.60
Wait just a minute here. Those who missed the housing bottom are actually ending up with a lower mortgage payment?
While not significantly lower, it’s still roughly $50 cheaper each month to buy the same house today, and results in $56,000 in interest savings throughout the life of the loan (yes, the down payment is slightly higher).
Who would have thought that? Turns out you didn’t necessarily miss out, assuming you are financing the deal via a mortgage, which most of us are.
Put simply, even though you may have missed the housing market bottom, whether by choice or accident, waiting may have actually paid off.
Read more: Home prices vs. mortgage rates.
About the Author: Colin Robertson
Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.