They say that buyers buy when rates go up...

Did you know that we tend to buy stock when the stocks are going up? and we tend to buy houses when interest rates are rising? I guess that is because we are always trying to catch the best possible deals before they rise any higher. Well, rates are going up again. 


The funny thing about Real Estate at this point in time is that while home prices in Austin may only change 5-10% over the next 12-18 months, with interest rates at the lowest points that they have been in almost 25 years, every 1 point change in the interest rate will affect a new home purchase value/mortgage by approximately 10%. So, even if home prices stay the same, when rates go from 4% to ~ 4.5%, that 1/2 point change in the rate shifts new home purchase values in Austin by around 5%. Really. This is not funny math. Find a good mortgage calculator and model the numbers yourself or look at my abstract model below.


So, here is the reality of where we have been recently and where we seem to be going. If rates continue to do what the analysts believe is happening, we could see rates back up around the average rate over the past 10-15 years, which would put us up around 6.5 - 7.5%. That is a shift of ~20-30% in home purchase values and monthly mortgages. Even at 5.25% rate, which is where we were earlier this year, we end up with about a 10% shift in home value/mortgage over where we have been this week. So, a 6% - 7% interest rate is still a great rate, but where we are right now is still unbelievably low, low, low. The truth is, many of us may never see rates this low again in our life time.


[Practical Application Below in round numbers]:

• Estimated model broken into $100,000 mortgage values 
• (You can use $100k as a multiplier for your own mortgage value)
• $100,000 at 4% interest would be $477 a month (Principle and Interest only)
• $100,000 at 5% interest would be $536 a month (more than 10% shift in value)
• $100,000 at 6% interest would be $600 a month (simple interest; 30 year fixed mortgage) 

• If you are financing a $400,000 mortgage, a 2 point shift in interest would impact your monthly payments by almost $500 a month which is a huge shift in home value.
• Looking at it strictly from payments, a 2 point shift in rates would increase your payments on a $400,000 mortgage by approximately $6,000 a year. 

Could you think of a better use of $6,000 a year for the next 10 years?


(Please note: this is not a mortgage calculator! This is not an offer or a loan at any rate. This article was written to explain what happens to mortgage payments when small changes in interest rates occur. If you want to know more about your particular needs, or want to talk to a mortgage broker--call me. I would be happy to put you in touch with experienced and qualified lenders to discuss your specific needs. If you would like to talk about specific homes, communities, or your Real Estate needs--call me. I would be happy to talk to help you in your specific Real Estate needs). 


tim.thornton@ziprealty.com
512.914.4665

Video: Top 10 Things you should know Before you buy Your Next Home

  

Where do the Investors Invest?

Do you ever wonder where the investors invest in the Austin area and what an investor looks for in a solid investment property? Well, let me tell you.

Investors generally look for one of two things in a property:  

(1) Cash flow--at 20-25% down payment

(2) Strong potential for future appreciation

Now, let's be clear, while all homes are considered "investments", an investment property is not a home where you are going to live. These are two entirely different things. While all real Estate can be considered "investments" in the future, the goals of buying to live and buying to invest are two different animals.

While investors would like to get both good cash flow and future appreciation on a property, these two things don't always go together. In some market conditions you get one or the other. So, understanding if you are looking for short-term cash flow or if you are looking for long-term appreciation on a property is very important. An investor without this basic understanding is probably not going to be an investor very long.

So, where do investors invest? It really depends on what you are looking for, what your risk tolerance looks like and and what your investment/exit strategy looks like. I have my favorite places where I go to find my investment properties, and communities that I like to highlight to my investors. These places may change from time to time, depending upon market shifts and my investor clients needs.

If you are looking to invest in Austin Real Estate--Let's Talk. 

You can reach me at 512.914.4665. (No solicitors please; this is a client phone line only).

How to Choose a Lender

Growing up, our parents taught us that having a relationship with "our bank" is critical to every major financial decision in our life, not the least of which would be buying a home. Sadly, those days are gone. Regardless of how long you have had a relationship with your bank, the new rules of banking apply to everyone.


Don't believe it:

• "My bank knows me. They will give me the best possible rates and service."
• "My bank will give me preferential treatment because they know me."
• "We already have one home loan with this bank. We won't have to give them much information to be approved for this loan. It will be straight forward, if not easy."
• "My bank is one of the largest banks in the country, and they own most of the paper on the back end anyway--I would rather that we just start with the bank where we are going to end when they sell my loan."

This last one is the biggest misconception today. But none of these myths are true in today's mortgage market. I am sorry to say that the rules of banking have changed so much during the past few years, and even more so since banks have been collapsing and consolidating these past 2 years. The truth is, your bank does not know you and does not have time to care about individuals. Yes, you may know the Vice President or President of your local branch, and they may say things to you like "What ever you need, just let me know." They may even be your next door neighbor, but none of this matters after you submit your loan to the processors and the underwriters. This is where knowing someone matters. And it is not you who needs to know the underwriters and processors and appraisers. It is your loan officers.

Big banks are consolidated. Loan officers are either in your local branch office, or they are on the phone somewhere. They are nice, and friendly. But the big banks make money by consolidating the real work of a loan to main offices. Typically on the East and West Coasts. These are the people who are making decisions on loans and directing the traffic for the process--not your local bank president. And not your loan officers. The words "I will do what ever I can to make this happen fast and painless" are meaningless words if the underwriter, appraiser and processors are not sitting in the same building, and have names that are known by the load officer.

Here is a test. Ask your loan officer what the names of the underwriter, appraiser and processor are for your account. If they tell you that they are in another office--run. You are in the wrong place. And by being in the wrong place, I mean you are risking the entire transaction by relying on a bank that does not know what happens, or who does what and when after you sign the loan documents. If they can not introduce you to the team in their office, you are in for the ride of your life. It is not a Disney ride. It is more like a Water Boarding Theme Park. Welcome to punishment, and no guarantees that you won't get a call 5 days before closing with these words on the other side "I did everything that I could, but we just found out that we can't approve you for this loan. I am very sorry." I hear it all the time from clients who are sure that I am wrong about today's banking industry.

So, who do you want to do your loan? A local Mortgage Banker. Not a bank. A Mortgage Banker. Not a Broker, though some mortgage brokers can do a good job as well, your best bets are a local Mortgage Banker. A person with a local presence, local office, local team. A person who can introduce you to their team in Austin. A person who has a portfolio of loans that are more than just FHA and Conventional loans. Hire a Mortgage Team that has a full portfolio of loans and options. Hire someone with experience.

If you are still unsure--call me, or ask your Realtor who they recommend and why. Choose your lender wisely.

Austin before and After the Recession

Austin has been described as "Bullet Proof" (again). Well, I don't know if Greater Austin is completely bullet proof or not, but when you are in the Top 3 before the recession begins, in the Top 3 during the recession, and emerge in our current time at the top of the heap, Austin must be pretty well positioned for the days ahead.

Job growth. Affordable homes. Low tax burden. Great Public Schools. Beautiful Lakes. Live Music. An oasis for celebrities. High Tech, Government, Higher Education and Health Care industries abounding. The Texas Hill Country. Solid transportation infrastructure. Wonderful Culture.

My clients often remind me--"People are really friendly in Austin." And you know, they are right. We like living in Austin, and it shows.