December 17, 2018
Orion’s brokers tell our AEs that some would-be homeowners have been waiting for the housing market to correct itself in order to purchase a home for less money. In the current housing climate, what is the cost of waiting? Orion does a lot of business in So Cal, so let’s use that.
Looking at a year average, using the median home price for Los Angeles County as published by the California Association of Realtors, let’s take a look at the cost of waiting to purchase a home from September 2017 to September 2018.
In September 2017, the median priced home in Los Angeles county was $606,110. In September 2018, the median price rose to $634,680, an increase of 4.7%. In some areas where Orion is licensed the increase in price was more, in some areas less. But nationwide, during this same time, the interest rate for a 30-year fixed rate loan for borrower with a 740 FICO score rose from 3.75% to 4.75% for the loan amounts needed to purchase the median priced home with 20% down.
With the prices and rates climbing, the mortgage payment also increased. With the 20% down, the loan amount in 2017 was $484,890. In 2018 the loan amount rose to $507,940. As a result, the monthly payment for the median home in 2017 was $2,245. By 2018, that payment is $2,650 per month, an increase of $405 per month, or about 18%.
Considering those two examples, the necessary income to qualify for the same home also increased. Using the same loan parameters referenced in these examples; in 2017 that house payment was $2,998 per month. Your client needed income of about $8,550 per month ($102,600 per year) to qualify. By 2018 with the increased rate, that house payment was $3,438 per month. Thus, the necessary income increased to about $9,825 per month ($117,900 per year).
Summing up, the cost of waiting that past year resulted in needing about 5% more funds for down payment, a 18% increase in the mortgage payment and required 15% more income to qualify. All of which leads to a follow up question: What will be the cost of waiting, or is there one, to purchase a new home in 2019, or 2020, instead of now or the near future? Our brokers are thinking about Christmas and New Year’s, but remember that Orion has some great programs and rates for first-time home buyers – ask your AE!