By TED SMITH
Back in October, I wrote an entry for this column about the “harmonic convergence” in the real estate market that made it a great time to either buy or sell. The good time to buy was caused by some of the lowest mortgage interest rates in years, which significantly extended buying power for purchasers. (At the time, 30-year fixed rate mortgages were running at about 3.60 percent.) The great time to sell was caused by the lowest inventory in years of homes for sale, which caused the prices of houses to rise.
In the eight months since I wrote that column, interest rates for 30-year fixed rate mortgages have fluctuated between 3.5 percent and 3.9 percent and the average sold home price in D.C. has increased by 14.5 percent to $608,909. There are signs that we will see increases both in mortgage rates and home prices through at least the end of 2013, if not beyond. Last week’s mortgage rates climbed to a 14-month high of 4.10 percent (before falling slightly), and the Mortgage Bankers Association predicts rates of 4.40 percent for 30-year fixed rate mortgages by the end of 2013. Many housing experts looking at the short supply of homes predict that it will last for at least the next three years, which will keep home prices high and rising.
So with all that in mind, how can this be a good time to buy and sell?
Well, for homebuyers, the answer seems obvious. Better to buy now with the lower interest rates and relatively lower prices than to wait until the end of the year with its forecast higher rates and higher prices. For a $600,000 home with a 20 percent down payment, your monthly PITI (principal, interest, taxes and insurance) will rise about $70 for every 1/4 percent of mortgage interest. So the difference between a 3.9 percent interest rate and a 4.4 percent interest rate would cost you about $150 a month. That will reduce your buying power even before you factor in a higher price for the same property by the end of the year.
But what about sellers? Given the steadily rising home prices in the D.C. area, doesn’t it make sense to wait and hold? That depends. If you are under water on your current mortgage, then by all means wait until the rising home prices lift your home value into positive equity territory. If you are planning to move out of D.C. in a few years and buy a home somewhere else, it may also make sense. But if you are planning to sell in a few years in order to move up in D.C., it might be smarter to sell now, get a good price for your home, and take advantage of interest rates that are still relatively low—which will give you greater buying power for your move-up dream home.
Ted Smith is a licensed Realtor with STAGES Premier Realtors specializing in mid-city D.C. Reach him at TedSmithSellsDC@stagesrealtors.com and follow him at Facebook.com/MidCityDCLife , Youtube.com/TedSmithSellsDC or @TedSmithSellsDC. You can also join him on weekly tours of open houses specifically geared toward first-time homebuyers. Sign up at meetup.com/DCMidCity1stTimeHomeBuyers/.