Was it worth the wait?

August 5, 2008

What I mentioned in the closing of last months entry was that, “Really the only thing that people should fear now is that if the market continues to improve, prices will strengthen and rates will go up.”  Well as of this week the long term 30year mortgage rate has increased to 6.77%.  This is a 1.52% increase from January.  I used an example in my April entry about an increase in rate, which at that time the increase in rate had cost a potential buyer $171 a month.  Today that would increase the monthly cost to a buyer an additional $264 for the same priced home.


This was illustrated brilliantly in a Time magazine article back in February of this year.  (for a full review of this article see the link,  http://www.time.com/time/magazine/article/0,9171,1713483,00.html . What is frustrating is that all the negative news has feared potential buyers into inaction and what was illustrated has come to pass.  The author showed that an increase in interest rate had a greater negative impact than a loss in value.  So, unlike the author’s illustration here in Portland where prices are still above where they were in January of this year, the interest rate increase has a much greater negative impact.  In fact, the Fed has recently stated that there will be no more rate drops this year and with inflation pressures they are certain to increase rates next year. 


While our market continues to improve the interest rate increase can have a significant impact on a buyers monthly affordability.  However, we must still recognize that even interest rates in the 6% or 7% range are still extremely good.  Considering historically where they have been.  When I first got into Real Estate back in 1986 as a sales agent we used to say that any rate in the “single digits” was a good rate.  I still believe this, but we have been spoiled by the rates in the high 4% and 5% range.


Bottom line here is that inventories are dropping for new and resale homes, rates are slowly increasing and we are seeing the signs that we are slowly crawling out of the bottom of this market.  Noted in the latest S&P/ Case-Schiller report which lists Portland as one of 7 metro areas in their 20 metro area composite that are improving as of their May report.  There are those that say there is another year of this, but the majority of those that I talk to at all levels of this industry feel that this buying opportunity is coming to a close and by February of next year we will be back to a normalized Portland market.  Nothing like we saw in 2005 & 2006.  Those days are gone for a while.  Maybe 10 years or so, but if we are able to shed 2 – 3 more months of inventory we will be back to what we are accustomed to with single digit appreciation and manageable inventory levels.


I also feel that the window is closing and too many people that have stared great opportunities in the face are merely watching them go by because of a fear of the “what if”.  “What if prices drop after we buy?”  Well, as I have stated many times before you shouldn’t be buying as a short term investment right now.  Real Estate is and has been historically a solid long term investment.  “What if rates drop after we buy?”  IF they drop it will be so insignificant that it isn’t worth worrying about.  It is a greater concern of how much higher they are going to go.  


So, by the time these people feel it is safe to get back in the water, the market will have improved, tightened up and it will be to late to take advantage of what is before them right now.  I still see the buying and investing opportunity that exists right now as possibly a generational opportunity that we may never see again.

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