Feb

22

Long Island Real Estate Market: Mortgage Interest Rate Watch

Filed Under Mortgage Matters, Sellers |


The stability of the Long Island real estate market rests with the performance of mortgage backed securities. I have mentioned this key point in previous articles and I think a lot more people are paying attention.

This video below will go over in simple terms, mortgage backed securities and their relation to why mortgage rates are so low right now as well as why they will start rising in the near future.

I’ve mentioned before that homeowners looking to sell must pay close attention to what’s happening in the financial markets and the most important piece of financial information is looking closely at mortgage backed securities.

On Long Island, if the rates rise dramatically (as many economists believe), home values could drop dramatically. The more expensive it is to borrow money for a potential buyer, the less home they can afford. Thus, in order to sell your home, a buyer will only be able to afford so much.

For every 1% the mortgage rate rises, home values (in order to sell the home to a buyer) will need to drop 10%.

Please re-read the above statement. I think…no I know from experience, that most homeowners do not really pay attention to me when I say that because it sounds so unbelievable. But, not just on Long Island, but all across the country, if the money needed to borrow from a bank to buy a home goes up, especially given the countries financial challenges, the amount a buyer can afford goes down.

How? Because when buying a home, the most critical item to consider is the monthly payment. The difference between a 5% mortgage interest rate and 6% is not one percent, it’s over 16% higher. Meaning from 5% to 6%, the cost of the monthly mortgage is 16% higher. So if their mortgage interest at 5% is say $1,500, at 16%, the payment for interest would be $1,740. That’s a $240 increase. In this economy…in any economy, that’s a big difference.

The point of all this is for homeowners thinking of selling to realize that there are challenges ahead. If you want/need to sell your home, pricing it aggressively now and marketing it with the right real estate agent is imperative. Otherwise, come May/June of 2010, you could easily see your home’s value drop 10%….in literally 60 days.

(c) Copyright 2010 www.tommcgiveron.com
By Thomas McGiveron, Licensed Real Estate Salesperson
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