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2013-06-06 08:04:44
Utah Home Prices & Interest Rates Soaring!

Utah Home Prices and Interest Rates Soaring

Home Affordability is sharply decreasing for current buyers: Don't wait to buy!

A brief glance at recent news articles show the rapid changes currently taking place in the housing industry, greatly affecting affordability for those still hoping to jump into the housing market (see articles at the end of this blog article). When home prices or interest rates increase, home affordability decreases; when both increase simultaneously, the decrease in housing affordability is more drastic.

First Quarter year-to-date home prices are up 19% in Salt Lake County and about 12% in Utah County. Interest rates have shot up .5 to .75% in the past 5-6 weeks, with FHA fixed 30 year mortgages jumping from about 3.25% to 3.875% and 30 year fixed Conventional mortgages jumping from around 3.5% to 4.125%.

To illustrate how these increases affect home affordability, lets look at some numbers:

Home Prices: Lets take three homes in Utah County that had market values of $150,000, $250,000 and $400,000 in the first quarter of 2012. With the 12% increase in home prices, these homes would have market values of $168,000, $280,000 and $448,000 respectively in the first quarter of 2013.

Interest Rates: During this 12 month period, rates have increased between .5% to .75% depending on the mortgage program. For this exercise, a 30 year fixed Conventional mortgage with 10% down will be used to calculate estimated payments (PITI), assuming a .625% increase, from 3.5% in 2012 to 4.125% in 2013.

Housing Affordability Calculations:

- 2012: $150,000 home at 3.5% interest with 10% down 30 year fixede Conventional mortgage= payment of $781/month
- 2013: $168,000 home at 4.125% interest with 10% down 30 year fixede Conventional mortgage= payment of $923/month
- DIFFERENCE OF $142/month
- $923/month payment for $168,000 home in 2013 is the same payment for a $180,000 home one year sooner (which now is worth over $200,000).

- 2012: $250,000 home at 3.5% interest with 10% down 30 year fixede Conventional mortgage= payment of $1282/month
- 2013: $280,000 home at 4.125% interest with 10% down 30 year fixede Conventional mortgage= payment of $1522/month
 
- DIFFERENCE OF $240/month
- $1522/month payment for $280,000 home in 2013 is the same payment for a $305,000 home one year sooner (which now is worth over $340,000).

- 2012: $400,000 home at 3.5% interest with 10% down 30 year fixede Conventional mortgage= payment of $2039/month
- 2013: $448,000 home at 4.125% interest with 10% down 30 year fixede Conventional mortgage= payment of $2412/month

- DIFFERENCE OF $373/month
- $2412/month payment for $448,000 home in 2013 is the same payment for a $485,000 home one year sooner (which now is worth over $540,000).

As you can see, what buyers could afford just 12 months ago is no longer affordable for most of them. Waiting in 2012 to save up 20% for a down payment in 2013, when 5% or 10% was available in 2012, was NOT a good decision for most. Waiting in 2012 to sell a home to have enough 'extra' equity for a larger down payment to upgrade in housing in 2013 was NOT a good decision for most (gained $10k more equity in a smaller home but the upgraded  home now costs $25k more with higher interest rates). Waiting for almost any reason when a buyer could have purchased in 2012 was NOT a good decision for the vast majority of these buyers.

We don't know what housing prices and rates will do over the next several years; but the general consensus is that interest rates will continue to rise and home prices will at least continue to steadily appreciate. If you can buy now, we advise that you buy now! Waiting will most assuredly only work against you. We still have historically low interest rates and home prices at around 2005 levels. But affordability will not get any better than it is now for all near future home buyers.

If you are considering purchasing real estate in Utah, pelase schedule a time to meet with us to discuss your options, plans, goals and timelines. The time is now to best take advantage of what the Utah Housing Market has to offer!

Recent News Articles:

Home prices along Utah’s Wasatch Front surged in 1Q, sales flat

Single-family home prices in Salt Lake County shot up 19 percent in the first quarter of this year, but the number of new and existing homes sold was virtually unchanged, underlining the shortage of units for sale even as demand and the economy are picking up. The median single-family home price in the county increased to $228,750 in the January-through-March period — the highest first-quarter figure since 2009. In contrast, the median price last year was $192,500, the Salt Lake Board of Realtors said Monday.

Although prices surged, sales were nearly flat from the first quarter of 2012. There were 2,190 homes sold in the period, seven fewer than the same time last year. The first quarter is usually a slow sales period. Still, the situation was largely the same elsewhere along the Wasatch Front, including in Utah County, where sales in the state’s second-most populous county rose just 4.9 percent, but prices jumped 11.8 percent.

April home prices see biggest yearly gain in seven years: CoreLogic

NEW YORK - Home prices racked up their biggest annual gain in more than seven years in April as the recovery in the sector picked up traction, a report from CoreLogic showed on Tuesday.

04 Jun 2013, reuters.com

Home Prices Soar to Largest Gain in 7 Years

The housing recovery has picked up speed, as home prices posted their highest year-over-year gain since February 2006, according to the latest housing data from CoreLogic. CoreLogic's home price index climbed 12.1 percent in April over year-ago levels. Home prices have been on the rise for more than a year.

Rising Interest Rates Won't Stop Housing Recovery, Group Says

The housing recovery is on a normal trajectory and gradual increases in interest rates won't slow it down, Lennar CEO Stuart Miller told CNBC on Wednesday. Miller, whose company is one of the nation's largest homebuilders, said the notion that the most recent Case-Shiller report signals a growing bubble in housing is a 'knee jerk' reaction by the investment community. He said the housing recovery is behaving as it should.

Pending home sales hit three-year high

WASHINGTON - Contracts to buy previously owned U.S. homes rose to their highest level in three years in April, but a shortage of properties for sale could slow down the momentum.

30 May 2013, reuters.com

Mortgage Applications Tumble Again as Rates Keep Climbing


Interest rates on U.S. mortgages continued to surge last week, rising above 4 percent for the first time in a year and driving down demand from homeowners to refinance, data from an industry group showed on Wednesday. Fixed 30-year mortgage rates climbed 17 basis points to average 4.07 percent in the week ended May 31 ... Rates have risen by 48 basis points in the last four weeks, with the most recent upswing driven by nervousness that the Federal Reserve could slow its economic stimulus efforts sooner than had been anticipated. Last week's interest rate was the highest since April 2012 and the first time rates have been above 4 percent since early May of last year.

Foreclosure sales tumble in first quarter: RealtyTrac

NEW YORK - Sales of U.S. homes in foreclosure fell in the first quarter, a report from RealtyTrac showed on Thursday, the latest data to suggest the housing market is on the mend.

30 May 2013, reuters.com

Surge in U.S. mortgage rates could force buyers off the fence

NEW YORK - Worries the Federal Reserve may begin to slow its stimulus efforts sent U.S. mortgage rates last week to their highest level in a year, a surge that could be a headwind to the nascent housing recovery should they march much higher.

29 May 2013, reuters.com

Home prices accelerate by most in seven years

NEW YORK - Home prices accelerated by the most in nearly seven years in March as the spring buying season gave the sector traction, while surging consumer confidence pointed to some resilience for the economic recovery.

28 May 2013, reuters.com

 

 

 
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