The Dramatic Effect Interest Rates Have
Today I was on a thread with a few renters who were having their rent raised even during the pandemic with them paying their rent. One of their common reasons for renting was due to the increase in home prices. I became curious about if buying a home today will have a lower payment than 10 years ago.
I looked up the median price of a Las Vegas home in 2007, which was just as the recession had started, and home prices had dropped 40%. Then I took the median price of a Las Vegas home today and calculated the principal and interest payments for both. My conclusion? In Las Vegas, yes, it makes sense to buy a house today. Here’s the math for why you should buy a house now.
Median Price- The median price is the price where there is the same number of homes that sell above this price as sell below that price in a month. This price will typically be slightly different from “Average Price,” which can be skewed if a 20 million dollar home sold last month, making the Median Price more relevant.
Housing History In Las Vegas
We saw a peak in home pricing in the Las Vegas Valley in 2006. From June 2006 to June 2007, the median price of homes in Las Vegas dropped 40% from $422,000 to $253,000. Today the median price in Las Vegas is $335,000. The Median Price has gone up, but what about the payment? That is what matters to most people. What is the home’s monthly cost each month?
The mortgage interest rate in June of 2007 was 6 5/8%. For a $253,000 loan with a 30-year note, the principal and interest payment would have been $1620. Taxes and insurance would be additional.
Today, even with Las Vegas homebuilding reaching the mountains and offering terrific views, in September 2020, Las Vegas had a median price of $337,250. At the current mortgage interest rate of 2 7/8%, the monthly principal and interest payment is $1399.62. The cost of taxes and insurance is slightly higher than in 2007 so add $100 a month for the increases compared to costs 13 years ago.
The conclusion is that today’s payment for a median-priced home is $120 LESS than a similar home 13 years ago!
This illustrates the dramatic effect interest rates have on your monthly housing expense. With these historic low rates, it’s hard to imagine interest rates getting much lower. That is why I think now is the right time to buy a house.
These interest rates won’t be here forever, so you have a historic opportunity for those who are able. My conclusion mathematically is that if you will live in your house for years, now is the time to buy.
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This blog was written by Kurt Grosse with Realty One Group. Kurt has been a unique top-producing Realtor in Las Vegas for 25 years. Kurt was a retired Nevada building engineer (P.E., C.E.) who uses his knowledge and skills to protect you through every step of buying your home investment. Call Kurt today at 702-750-7599 to schedule a housing consultation.