Tag Archives: 30 Year amortization

It’s About the Listings…It’s about Interest Rates

The 2010 Sales Year was characterized by an abnormal addition of listings to the real estate market in the late winter and early Spring. In February, 2010, inventory swelled by almost 10% in a single month with the gain of over 400 units between March 1 and April 1. This was after February added almost 200 listings to inventory. The seven month run up in inventory from January 1 to July 31, 2010 saw a gain of almost 50% in total listings for sale.


Early 2010 Compared to Early 2011

While demand never quite equaled the same levels experienced in 2009, part of this reason was the double-sided promise to buyers that their opportunity was never getting away from them: More listings just kept coming on the market, allowing them to prolong their decision, and the steady drumbeat of “interest rates are sure to rise” was an outright falsehood as rates actually dipped below 4.00% in October (a full 1% improvement over February, 2010). These two actions allowed buyers to prolong taking action.


In 2011? New listings are coming on the market, but they are beating absorbed by new buying activity. There were 464 unit sales of single-family homes in January 2010 and there were 460 in January 2011. The average selling price of these two months was all of $150 different. In other words: the same buyers were buying the same homes at the same rate. Interesting side note: 2010 had an $8000 tax credit carrot to get buyers to perform. That’s kind of a big deal when $8000 represents a complete first-time buyer downpayment at $210,000 (the January average sales price for the month both years). This year offers no such carrot. But buyers performed in the same manner and volume, absent federal stimulus.

Also interesting: January 2010 gained 170 listings, February 2010 gained 240 listings and March 2010 gained 412 listings. In 2011, January reduced in supply one listing, and February is only up 50 units. Interest rates are about the same as they were this time last year. Again, the drumbeat of “they’re sure to go up” is on the street, and the reality is that they are up close to a full percent in the last four

Freddie Mac 30 Year Avg since 2005


months. Why this is interesting: Conventional Wisdom  was that the market was getting better in 2010. This was “proven” because more people were buying homes in the spring of 2010 then the (miserable) spring of 2009. But the quiet under-current in 2010 was that that inventory was increasing at a rate that ultimately had 50% more listings on the market in the summer than the start of the year. While people were briskly buying houses in early 2010, months of inventory, and therefore, seller’s ability to dictate pricing, wasn’t getting any shorter because the ratio between listings and sales wasn’t changing. But so far in 2011, the big bounce in listing inventory has not happened. However, buyers are still buying at about the same rate, and don’t have federal stimulus inviting them to do so.

So far in 2011 (and that’s all of 50 days), listings for sale have increased slightly more than 1% while the rate of sale has remained the same (without a tax credit stimulus) and interest rates after steadily rising for four months have retreated 0.1% in the last week to come back below 5%.

This doesn’t establish a trend. But if you’re a buyer thinking “where are all the new listings I was expecting?”… you’re not alone. If you were hoping to buy based on a 4.25% interest rate, your window might have already closed. Over 30 years, the increase in interest payments from 4.25% to today’s 5.00% on a $210,000 loan is $35,000. I was told the other day by a buyer that the real cost of buying a home is the amount you finance. That is kind of true.


Comparison of Loan Values, Interest Rates, and 30 Yr. Paid Interest


But literally,  that’s only half of the equation. The price you pay is the amount you finance at the interest rate you finance it at.