by Terre Webb, Branch Manager For Mortgage Investors Group
posted July 2, 2008
Mortgage rates were 9.71% in June, 1978; 10.26% in June, 1988 and 7.00% in June, 1998. Even with the recent increase in mortgage rates, rates are still better than they were 10 years ago.
In 2008 if a Chattanoogan earning the median household income purchases an average price new home putting 5% down, the principal and interest payment would represent 25.25% of the household income. This is down from the national averages of 40.50% in 1978 and 51.90% in 1988. What does this mean?
Chattanoogans have more disposable income. In 1998 the national average price for a new home was $181,900. In 2008 the average price for a new home in Chattanooga is $191,000, only $9,100 more than the national average 10 years ago. The 2008 national average cost of a new home is $300,000. In 1998 it was $181,900. Nationally, this represents an increase in new home prices of 65% over the last 10 years. Chattanooga’s average cost of a new home is $191,000; this is $109,000 below the national average.
The Chattanooga market has never seen the dramatic increases in home prices that other areas of the nation have experienced. From 1978 to 1988 new home prices increased nationally 221%. This kind of appreciation has never been typical for the Chattanooga market. Normal appreciation for our area has been from 3-5% annually.
What does this mean for our market? It means that we are not experiencing the dramatic decline in home values other areas of the country are experiencing. Yes, foreclosures are offering opportunities for homebuyers to purchase a home at a bargain price.
Overall our values are holding steady; we are just not experiencing the 3-5% appreciation that is normal in our market. For the consumer that means that a home that would have sold for $200,000 last year is most likely still going to sell for $200,000 this year. If we were still enjoying the 5% appreciation of property values that house would be selling for $210,000 this year.
If a consumer buys that house for $200,000 at the current market rate, the payment would be within $5.00 of what it would have been had the home increased in value 5% and rates were still at 5.75%. Bottom line, the flat market on property appreciation has offset the increase in mortgage rates.
If rates drop, property values and prices will rise. The real estate industry has gone through the largest property appreciation cycle in history due to record low interest rates since 2003. As inventory starts to decrease home values will go back up…the law of supply and demand. Interest rates are still very good.
Opportunities are abundant for homebuyers to get a good deal on a home. Now is definitely the time to buy a home.
1978 1988 1998/ 2008
NATL. AVERAGE/ CHATTANOOGA AVERAGE
COST OF A NEW HOME
$62,500 $138,300 $181,900 $191,000*
MEDIAN HOUSEHOLD INCOME
$15,064 $27,225 $38,568 $53,100
JUNE MORTGAGE RATE
9.71% 10.26% 7.00% 6.25%
PRINCIPAL AND INTEREST ON 95% LOAN
$508.38 $1,178.32 $1,149.68 $1,117.22
% OF INCOME PRINCIPAL AND INTEREST REPRESENT
40.50% 51.90% 35.77% 25.25%
Terre Webb
Terre.Webb@migonline.com
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