If you read our May 2009 San Mateo Real Estate Price Report, you’ve seen the data. We may have already hit the bottom in San Mateo County real estate prices. If you’ve been following the news lately, you’ve also noticed interest rates have started to creep up.
What does this Mean for San Mateo First Time Home Buyers?
Those of you still on the fence about buying a San Mateo home let me help you understand the effects of interest rate and home price fluctuations. As home prices have been going down, interest rates hit records lows about 3 weeks ago. Then, two weeks ago, interest rates spiked ¾ of a point in one day and they have been creeping up ever since.
What do Interest Rates Have to Do with San Mateo Real Estate Prices?
“The thing that will make home prices stop falling is the very same thing that will push mortgage rates higher,” says Jim Svinth, chief economist at mortgage firm Lending Tree. So anything you gain by a further drop in prices might be offset by rising financing costs.” – TIME Magazine, February 25, 2008
Sound Familiar?
Small changes in interest rates have more of an impact on your monthly mortgage payment than small changes in the purchase price of the house. To help illustrate this point, let’s take a look at the effect of interest rate hikes and home price declines and how they might affect your finances.
Today’s Situation
Today’s interest rate on a 30 year fixed mortgage was 5.625%. Assuming a purchase price of $500,000 and an interest rate of 5.625%, your monthly mortgage payment including principal and interest will be $2,878.28.
| Today | Scenario 1 | Scenario 2 |
| Home Price | Home Price Decreases by 5% | Home Price Decreases by 1% |
| $500,000 | $475,000 | $495,000 |
| Interest Rate Today | Interest Rate Increases by 0.5% | Interest Rate Increases by 1.0% |
| 5.625% | +0.5% | 6.125% | +1.0% | 6.625% |
| Monthly Mortgage Payment | ||
|---|---|---|
| $2,878.28 | $2,886.15 | $3,169.54 |
What Will Happen if Home Prices Fall 5%?
Say you’re waiting for home prices to fall and they do. They fall 5%. However, during that time period, interest rates have increased by 0.5% to 6.125%. The new purchase price of this San Mateo home (Scenario 1 in the table) is $475,000 and the new interest rate is 6.125%. With these terms, your monthly mortgage payment including principal, interest, taxes and insurance will be $2,886.15.
What Happens if Home Prices Fall 1% and the Interest Rate Increases by 1%?
Let’s say home prices fall 1%, which makes your new purchase price $495,000 and the interest rate creeps up again, but this time it creeps up a full point, making the current rate 6.625%. This will make your monthly mortgage payment $3,169.54.
Still on the Fence?
If you’d like to sit down and discuss your real numbers, our team (including Chris Williamson our Mortgage Advisor) would be happy to sit down with you to discuss your situation in further detail. We’ll even show you a detailed rent vs. own analysis and we’ll tell you what you can afford. If the numbers say you would be better off renting, we’ll tell you that too!
Fill out the form below, email or call us at (650) 655-2500 to schedule your appointment today.
cforms contact form by delicious:days
Other Posts You May Enjoy
- Real Estate Myth Busted: I’ll Get the Best Deal If I Call the Agent Listed on the For Sale Sign
- Want a Little Extra Piece of Mind to Buy in 2009?
- San Mateo County Real Estate on the Road to Recovery?
- Paying More than $1,600 in Rent? You Could Own in 2009!
- Top 4 Reasons Not to Buy a Condo
If you have enjoyed LivingWellinSanMateo – san mateo county real estate, please subscribe to our RSS feed.
Raymond Stoklosa, Broker/Co-Owner
Chela Stoklosa, Realtor/Co-Owner
