real estate review
By Ethan C. Nobles, director of media relations for Arkansas Realtors Association

In spite of all the negatives we’ve heard about the current housing market, this is the best time in years for buyers to consider purchasing a home.

There are at least three factors that should get the attention of anyone thinking about purchasing a home – low interest rates, downward pressure on prices and increasing inventories.

In January, interest rates dropped to around 5.5 percent for a 30-year, fixed interest mortgage. That’s the lowest rate we’ve seen in around a year when 6.5 percent was typical.

What does that mean for consumers? Simply put, a 1 percent drop in interest rates saves consumers a lot of money. Also, Jonesboro realtor and ARA President Jim Furr said such a drop boosts consumers’ buying power.

Let’s say, for example, a homebuyer takes out a mortgage for $100,000. At an interest rate of 6.5 percent, the monthly payment under a 30-year, fixed interest rate mortgage with a principal amount $100,000 would be about $632. At 5.5 percent, the mortgage payment would drop to $568 per month – a savings of $64 per month and $23,040 over the life of the loan.

Also, at that 5.5 percent rate, a borrower paying $632 per month could afford to borrow $108,000 – more “house” for the same amount of money.

Of course, the example amounts exclude any monthly payments made in escrow toward home insurance and property taxes. Closing costs aren’t considered in the example, either.

Furr said when interest rates drop by even a slight amount, buyers save a lot of money. Even a drop of one-eighth of a percent means a savings of $7 per month and $2,520 over the life of the 30-year mortgage.

By the way, keep an eye on the stock market if you want to get a handle of whether mortgage rates are going to climb or fall. It’s a common misconception that mortgage rates are directly impacted when the Federal Reserve Bank decides to either raise or lower the federal funds rate.

Mortgage rates, however, are long term loans and aren’t directly impacted when the Fed announces interest rate changes. Mortgage rates track along with the bond market.

When the stock market is struggling, people tend to pull their money out of stocks and invest in less risky securities such as bonds. As more people invest in bonds the interest rates on those securities drop. When interest rates on bonds drop, mortgage rates tend to drop as well.

Buyers should keep a close watch on mortgage rates, however. The National Association of Realtors has predicted those rates will climb to 6.4 percent by the end of the year.

While it’s great news that interest rates are low, buyers should also be encouraged by relatively flat home prices. In Craighead County last year, the average price of a home was $135,736 – up 1.14 percent over an average of $133,617 in 2006.

When you combine stable home prices with low interest rates, you get a situation in which homebuyers can get more bang for the buck than they could just a year ago. Meanwhile, homeowners are still enjoying a bit of an increase in the value of their homes.

Another factor that favors buyer is that inventories are on the rise in most markets. In other words, there’s not as much competition among buyers as there was back in 2005, the best year on record for real estate markets nationally and in Arkansas.

When inventories of homes were tight, it was common for several buyers to look at the same home and compete with each other to purchase it. Typically, buyers would try to outbid each other, thus driving up the sale price of the home. That was all simple economics at work – demand often outstripped supply and prices generally increased as the result.

In the current market supply and demand is more in balance. These days, then, sellers are often competing with each other for buyers.

That translates into some pretty good deals on homes out there as sellers try to outdo each other to attract buyers. We’re seeing the results of that competition in reduced prices, incentives such as home warranties or amenities like privacy fences thrown into the deal – sellers are coming up with all sorts of creative ways to draw attention to their homes.

When considering the current housing market, I can’t help but think of a conversation I had with a friend who was worried about purchasing a home. He’d heard that the market was down and was apprehensive about getting a home in the current climate.

The fact of the matter is, this is a perfect time for him to purchase a home. Honestly, would a buyer be better off getting in now when prices are stable, interest rates are low and there are a lot of homes to choose from or waiting until prices and interest rates are on the rise and inventories are declining?

The answer to that question is pretty obvious.