Today’s Master Builder Musing is by Nancy Scott, VP of Sales and one of our newest team members to earn the Graduate Master Builder (GMB) designation.
A house is an asset that is built for folks and families to live in, enjoy and maintain. It gives us a sense of who we are. By making payments to a mortgage company instead of a landlord, the house becomes an asset. The problem with combining that thought with housing is that our houses are not banks. The real purpose of housing has nothing to do with cash-out refinancing. It is a place to call home, to raise a family, to enjoy Sunday ballgames, to decorate with your style, to park your car in, or to barbecue in the back yard with friends.
This year, the average renter in Tarrant County will be handed two rent increases. Let’s face it, you have to pay to live somewhere. If interest rates are low and rent increases are high, the true best investment is housing. The required down payment when you buy a home is usually less than 3 and one half percent (sometimes as low as zero down), yet when housing prices rise, the investment value increases on the total price of the house.
Now it quickly makes sense. Builders are now building on discounted lots. The lots were discounted to the builders when the housing market declined. The builders now offer brand new homes at lower prices than they have been able to offer in decades. Lower pricing combined with the new home warranty and energy efficiency really add up and just make good solid sense. The discounted lot supply is limited, as developers cannot redeliver new lots with the same type of discounts.
Today’s interest rates are some of the lowest in the history of our country. Today’s home prices are the lowest since the 1990’s. These two combined make a huge difference in a payment. Let’s compare the principle and interest payment.
For example, in June 2000, the average interest rate was 8.5%. On a $150,000 home with a 8.5% interest rate the principle and interest payment was around $1124. The total payment with taxes and insurance was $1672.00
The new builder pricing in August 2011 for a similar home as the above example is about $130,000 in the current marketplace. The current interest rate is about 4% – the principal and interest payment is $628. The total payment including all taxes and property insurance is around $1121.
Now let’s see how much you will have paid off after 15 years if you stay in your home. With the 2000 pricing and rates, you would have paid down to a balance of $114,155.
With 2011 pricing and rates, you would have paid your home balance to $84,924 after 15 years. Now imagine, if you paid extra each month, the amount that buyers actually paid in June 2000 and kept paying it for the 15 years-an extra $496 per month. Where would you be? Your house would be completely paid for and it would have been paid for in February 2024. That means your home would be completely paid for in 13 ½ years. This is the true way to wealth. This is the true American dream.
Amazing, huh? This doesn’t even show how much the “discounted home” will rise in value over the years. An apartment will never be paid off. Renters just make someone else rich.
Do you really want to take this risk that interest rates and housing will stay low? Or do you want the benefits that a home provides?