Author: Nef Cortez
Title: Interest Rates Affect Home Values
Interest rates have been trending at historically low levels for the last decade. Beginning with the Great Recession (which many have termed a Depression), interest rates on home loans carrying a fixed rate and a 30 year payback term, have meandered under 4.75%. They have ranged from the current 4.5% down to as low as 3.5%. In that same decade, beginning with the upturn of prices from the bottom point of the real estate market crash of 2008, the Median Homes Sales Price (MSP) of a California Single Family Home (SFH) has been on a steady increase. Because of the Great Recession, the Median Sales Price of the California median single family home dropped from its high point of $595,000 in May 2007 down to its low point of $245,000 in February 2009. This represented a drop of more than 59%, a huge number. The record number of foreclosures recorded in the last decade were both an outcome and a factor in the spiraling down of the California MSP, as it was across the United States. In fact, many other parts of the world suffered through a similar real estate market recession.
The California Median Sales Price in 1990 was $195,000.00 as reported by the California Association of Realtors (C.A.R.). The interest rate on a 30 year fixed rate mortgage was approximately 10%, according to the Federal National Mortgage Corporation (FHLMC). A decade later, in July of 2000, the California MSP had risen to $245,000.00, and increase of 25% in ten years. The interest rate in that same period of time had dropped to close to 8% from 10% a decade earlier. This represented a drop of 20% in the cost of a mortgage. As the cost of money went down, the Buyer was able to and did pay a higher price in the MSP or purchase price of the home.
The “CRAZY!” increase in home prices between June 2000 and May 2007 was not driven nor greatly influenced by the mortgage interest rates but more so by the crazy disregard for common sense underwriting guidelines. The California MSP saw an increase from $245,000 in June 2000 to the then record high MSP of $595,000 in May 2007. This represented an increase of 142% in MSP in only 7 years, an astounding 20% annual increase! Totally unsustainable, as was evidenced by the subsequent housing market crash. Where do you think we are now in the current real estate cycle? E-mail me your opinion.
This article was written by Nef Cortez who is a licensed Real Estate Broker, Ca DRE lic # 00560181, licensed since 1976. He can be reached for more information via e-mail at email@example.com, or website www.nefcortez.com. Please feel free to email any questions regarding real estate.