Daytona Real Estate Sales Up in May 2010

A 1.6% increase may not seem like much. That’s what we saw in May over April sales. That’s not the news. The news is that we are up 23.5% year over year when we compare May of this year against last year. Local Daytona Beach home sales gains over 2009 are holding.

For the first five month of 2010 sales are up 30.4% over 2009. We’ve sold 428 more homes and condos than during the same period last year. That’s the important trend. Even if sales were to stay steady, or even decline slightly, on a month to month basis, the market has regained a lot of its strength lost during 2007 and 2008.

The composition of sales however has changed radically. Most home sales are still occurring in the under $200,000 price range. Take a look at the chart below and you will see how sales under $200,000 dominate the market.

80.5% of sales in May were under $200,000. Add the 11% of sales between $200,000 and $300,000 and the total rises to 91.5%. Only 36 of the 426 homes and condos sold were sold for over $300,000. This is a trend that we have seen for over two years and is still increasing slightly. In April, 90.4% of sales were under $300,000.

What Do May Numbers Mean?

First, with sales under $200,000 dominating the market at 90.5% of all sales, homes and condos in this price range are going to sell faster for sellers. For buyers, homes in the this price range that are priced right, will have more competition with other buyers. It’s not unusual for an aggressively priced bank-owned foreclosure property under $200,000 to have multiple offers and a bit of a bidding war.

Second, more expensive homes and condos have significantly lower sales and less competition. Homes and condos over $300,000 must jump out as a significant value. The listing price must be backed up by value. An attractive, properly priced listing in any price range must have its value showcased and made clear to prospective buyers.

Three Factors to Watch

We see three factors to watch closely this year to time your home purchase:

• Home Prices
• Mortgage Rates
• Inflation

It’s rising prices you need to be watching. No, we are not seeing rising prices yet, but it will happen. Some markets are recovering in price, but not sales. We have recovered in sales, but not price. When prices of Ormond Beach homes for sale and other area homes start to rise, we expect a mini-boom if people panic about getting what they see as a once in a lifetime bargain.

Mortgage rates and inflation are tied together. Watch both because if you are financing, it can cost you a lot. A big jump in inflation rates will boost mortgage rates. Here’s what happens:

Monthly Payment for a $200,000 mortgage at 5.14% = $1,090.82

Monthly Payment for a $200,000 mortgage at 5.44% = $1,128.06

Monthly Payment for a $200,000 mortgage at 6.00% = $1,199.10

Monthly Payment for a $200,000 mortgage at 6.5% = $1,264.14

Rates going from 5.14% to 6.5% is not unrealistic. Remember 1980s Interest Rates.

Is Now the Right Time to Buy?

We think it’s a good time to buy, but don’t take our word. Look at the 426 people who bought homes and condos in May. 1835 votes were cast by buyers so far this year, 30.4% more than last year and 57.1% more than in 2008. The people who vote with their money are the people we watch.

We are concerned about inflation. We believe there will be higher inflation to pay for record government spending and borrowing. It’s a matter of when, not if. If you are financing and qualify now, consider the value of having a 5% mortgage rate if rates go to 7, 8 or 9%.

Please give me a call at 386-566-7503 to discuss the market and your options.

International Instability Keeping Mortgage Rates Down? – Nah

Most people who buy Daytona Beach and Ormond Beach homes and condos care only that mortgage rates are low. With prices being low, it’s a pretty good situation right now for buyers. However, there are those who like to speculate rather than report useful facts and information.

It appears that whatever is happening in the world is often used as an explanation for favored opinions. I been seeing a few references in the past few days that domestic mortgage rates are being held down by instability in international financial markets. I don’t believe this at all.

I’m not an economist, but that doesn’t stop me from understanding some basic things about money and interest rates. Mortgage rates are low because the demand for loan money is down. If there were better places, safe places, for banks to loan money, they would – at higher rates. Long-term bond rates that are correlated with mortgage rates are low, so mortgage rates stay low.

If the economy were in any state close to normal, we suspect rates would be much higher. The US government has been borrowing and printing money during this recession and we will eventually pay for that with inflation. We can’t know for sure when, but if history repeats, we can fully expect it to happen. When inflation kicks in, interest rates and mortgage rates will rise.

Mortgage Rates Next Year Don’t Matter Now

My point is that mortgage rates are low now. Prices are low now. If you are planning to buy, this year and next year will probably be the best opportunity for a long time. If you’re in the market, watch prices and watch mortgage rates. In the long-term, you won’t need to hit the absolute bottom of both mortgage rates and prices. Anywhere close should put you in a solid position for future appreciation.

Mortgage Rates Jump to 5.37%

Yes, mortgage rates are up. Rates have jumped from 4.93% at the beginning of the month to 5.37% today. The question is will they go up further, or stop and reverse like they did over the summer when rates approached 5.6%?

Looking at the chart below from bankrate.com, we see mortgage rates varying over the course of the past 12 months. We can see several periods of ups and downs. Have the underlying conditions in the mortgage markets changed?

2009 Mortgage Rates Chart

The Mortgage Rate Factor

The easiest way to understand mortgage rates is to understand that if it cost lenders more, it will cost you more. Mortgage lenders compete with US Treasury Bonds which are fully guaranteed by the US government. Mortgage lenders will pay more to borrow than the government to compensate for risk.

Look at the chart below that combines mortgage rates and 30 year bond prices. It’s not exact, but the darker line is mortgage rates and the lighter line the 30 year bond rates. It appears to correlate very closely. As bond rates go up and down, so do mortgage rates.

2009 30 Year Bond Rates Against Mortgage Rates

Look across at the horizontal lines and you will see that the lines correlate. Ignore the vertical scale because I didn’t match up the scales. The point is that recent mortgage rates correlate with US Treasury 30 year bonds.

We see continued pressure on Mortgage rates because of continued pressure on 30 year Treasury Bonds. The deficit is at $12 billion and growing. We believe that results in inflation at some point. Inflation means that bond buyers will expect higher rates to compensate; bringing mortgage rates up with them.

What to Do Now

If you are in the market to purchase Daytona Beach or Ormond Beach real estate, and you will be financing your purchase, it will be important for you to track mortgage rates. To fully understand the impact of changes in mortgage rates refer to our article Basic Math for Home Buyers Who Finance.

Make it a point to track 30 year US Treasury bond rates too. You can track these at CNN, Bloomberg, or Yahoo Finance.

If you qualify for the current home buyers tax credit you should take advantage of it before it expires with contracts written after April 30th. We don’t know if the credit will be extended, so why not take advantage of as much as $8,000.

We’ve seen prices stabilize in the past quarter, but that’s no guarantee that they won’t fall again, but whether they fall or not, it is to your advantage to secure the lowest possible mortgage rate and get the tax credit. We can help you find properties that are priced right, but we still advise that you don’t buy in this market unless you are going to hold the property for 5-7 years.

We are available to discuss your options. Give us a call at 386-566-7503 with your questions.

Mortgage Rates Bounce Back from Historic Lows

January 22, 2009

Earlier this week mortgage rates for 30 year conventional mortgages were at 5.14%, at the close of business today, rates were at 5.44% according to bankrate.com.

In our last Daytona Beach Real Estate Weekly Report, we commented that rates were very low and that long-term economic trends would force rates up. We don’t know what will happen next, but I suspect that we may not see 5.14% rates again.

The boost in rates means an additional $37/month on a $200,000 mortgage, or over $13,000 over a 30 year mortgage. We have shown that if rates went from 5.11% to 6.5%, you would pay more for a $180,000 mortgage than a $200,000 mortgage.

So, if you’re in the market for Daytona Beach or Ormond Beach homes or condos, and you plan to finance, keep a close watch on mortgage rates. Check back here often for more information and breaking news.