By SAMMY DWECK
Your Realtor can tell you all day long about the joys of your impending homeownership – I’ve been telling my clients for years as I’ve watched them relish the benefits of equity, tax deductions and, most importantly, pride in ownership. In a competitive market drought with bidding wars and low inventory, I reassure my clients that real estate is a long-term investment. Advantageous mortgage rates make a desirable housing market substantially more affordable, and given the state of the market, I took my own advice and started searching for a home for myself.
After saving up for my down payment, I purchased my first property in April for the same price the seller paid for it in 2006, toward the height of the market. I paid the list price after a contract for the same property fell through, and the listing agent gave me an opportunity to swoop in as a backup before going back to the open market. Why, you might ask, would someone in the real estate know pay list price for a property? I live in the same reality as all of my clients – I am competing with other motivated people who want to take advantage of low mortgage rates, and I must contend with the same tight inventory. When I saw something very special, I figured that it would be hard to go wrong at an interest rate starting with a three.
While the difference of a percentage point or two in a mortgage rate may seem small, the effect on affordability at a lower interest rate is simply indisputable and significant. For instance, a $500,000 condominium with a 20 percent down payment, D.C. property taxes of 0.85 percent and a $500 per month condo fee results in a monthly payment of about $2,650 at 3.5 percent on a 30-year fixed.
According to Freddie Mac, the average 30-year fixed rate seven years ago, in May 2006, was 6.6 percent. Changing nothing else except the rate, the same property that costs you $2,650 per month today would have cost you $3,409 per month at the prevailing rate of seven years ago.
While prices are comparable, monthly affordability is wildly disparate. In fact, simple math shows that to achieve the same monthly payment at 6.6 percent, you give up $130,000 of purchasing power, resulting in a $370,000 property instead of a $500,000 one in the above scenario. Further, you build about $4,000 more equity in year one alone (the year the most goes to interest) at 3.5 percent than at 6.6 percent, even given the lower monthly payment. Put less money down, and the effect is even more pronounced. This is a really good time to borrow money if you can afford to pay it back.
As you can see, the math made sense and this logic extended to my own purchase. The intangibles of home ownership that I’ve always promised my buyers became my reality. I happily began to make the place my home – I fixed the shower spout my first week in my new property ($125), made the French doors from the foyer to the living room sit flush ($500), installed electrical fixtures (oy vey), painted – I’ll spare you another math lesson, but to me, this was money well spent. It was the kind of thing I always wanted to do in all of the places I rented, but that would have been money out the window. Walking into my foyer after a long day of work, I smile. The fruits of my investment in myself are ones I get to reap every day. I now own something I can take great pride in – and trust me, I do.
So, prospective buyer, I too have now put my money where my mouth is – this is an incredible market in which to take an exciting, well-calculated leap.
Sammy Dweck of The Amber & Sammy Group with Evers & Co. Real Estate, Inc., is a licensed real estate agent specializing in townhouse, condo and co-op sales in the D.C. metro area. Reach him at Group@AmberAndSammy.com or 202-716-0400.
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