The Cost Is More Important Than the Price

by 27 Apr 2012

The case for buying a home today is extremely compelling

Buyers are still concerned that home values might continue to soften throughout the year even though the housing market is showing signs of recovery in many regions of the country. The fear originates from the uncertainty that has existed in the market over the last several years. This is evidenced by the fact that there are many buyers still perched on the fence of indecision, and others that place offers that are unrealistic in the current environment. It is our job as industry professionals to eliminate the fear by bringing clarity to the situation.

More and more research is coming out showing that it makes great financial sense to purchase a home today. Whether it is rent-vs.-buy ratios, income-to-price ratios or income-to-mortgage payment ratios, purchasing a home right now is a bargain compared to historic norms.

Research is also showing that their housing expense is probably going to increase rather dramatically in the next several years if they are renting. The Wall Street Journal, in an article earlier this year on their online resource Market Watch, reported:

Apartment dwellers could be facing double-digit rent increases in the coming years as a shortage of new multifamily units, coupled with a rise in prime renter-age households, gives landlords clout they haven’t seen since the mid-1990s.

‘Demand pressures are building. It’s not bad today because rents have been down the last two years,’ said William McLaughlin, an executive vice president with Avalon Bay Communities. ‘But it feels a lot like 1992, when we were coming out of a deep recession … and we ended up seeing double-digit rent increases after that,’ he said.

…Already there are signs the apartment market is tightening and in some cities rents are already going up 7% or 8% per year.

Does it make financial sense for a young person, couple or family to pick a form of housing that will dramatically increase in cost over the next several years? They still may think they are being forced to pick the ‘lesser of two evils’ knowing that house prices are still falling. They must realize, even with prices still softening, the COST of purchasing a home is at a historic low. They can lock in their housing expense for the next 30 years at all-time bargains in price and financing costs. We must be able to communicate this to purchasers in a simple and effective manner.

We often talk about interest rates being at historic lows and home values being at pre-bubble prices. We must be able to put these two advantages together to help a buyer easily decipher the tremendous opportunity that exists in today’s market. According to the most recent S&P Case-Shiller price index, residential real estate values have returned to 2003 first-quarter prices. That, in itself, says something. However, when you factor in mortgage rates, the case for buying a home today becomes even more compelling.

In 2003, 30-year mortgage rates stood at 5.88%. Today, they are 4%. How does that impact the actual COST of a home? On a home purchased for $250,000, here is the difference in monthly payment:


The buyer saves $285.30 a month, $3,423.60 a year and $102,708 over the life of a 30-year mortgage! They buy the home for the same PRICE but the COST is over $100,000 less.

This is why so many financial advisors are saying that this may be one of the greatest times in history to purchase a home – even Warren Buffett. Buffett appeared live on CNBC’s Squawk Box last month. During the interview, he was asked about the current real estate market and whether he felt now was the time to buy. His response was rather emphatic and has been used as a headline in hundreds of articles since the interview:

“If I had a way of buying a couple hundred thousand single-family homes I would load up on them.”

If Warren Buffett is saying now is the time to buy, perhaps we should be giving the same advice to our purchasers.

Steve Harney of KCMSteve Harney has been chosen as one of the Top 100 Most Influential Leaders in Real Estate by Inman News and has appeared on Fox Business News. He is the founder and chief content provider for


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