DON'T buy MN real estate...unless you want to pay more

By
Real Estate Agent with Remax Advantage Plus

Many buyers searching the MLS  have been sitting and waiting for home prices to hit bottom. The problem with theat theroy is we ultimately will not know what are at the bottom, until we are on our way back up. Minnesota buyers looking to purchase their first home in Shakopee, or possibly their next home want to try guarantee that they are purchasing at the best possible price. I do believe that prices still have some room to fall in the Shakopee real estate market due to the overwhelming foreclosure numbers you see in our current real estate marketplace. I do however, disagree waiting is the best option. In the midst of some of the lowest interest rates we have seen, and may potentially ever see, I feel more buyers should be taking advantage of low interest rates. Most buyers feel that waiting is a good financial decision when it comes to the current real estate market conditions. The buyers in the current Shakopee real estate market should not be so concerned about housing prices, but they should also be concerned about cost. Interest rates and current pricing are the two factors that dictate your overall cost.

PRICING AND PAYMENTS

I could realistically see the price of Shakopee real estatdropping 10% of the course of the next few years. Note if there was a decrease of 5% per year in 2011 and 2012 from an original sales price of $200,000 at the end of 2010, by year end in 2011 the value would be $190,000 and by 2012 $180,500. Overall the is a decrease in price of almost $20,000. That really makes one think before purchasing. I compare real estate similarly to that of the stock market. No one watches their stocks EVERY SINGLE DAY to see where their value is, but rather when the time comes to sell you may take a closer look. Those purchasing today really do not need to look at values decreseing the next two years, which is just a possibility, but what are their payments going to be and overall cost.

If you were to have purchased that same Shakopee real estate for $200,000 in 2010 with an interest rate of 4.5%, your payments as a first time buyer with 3.5% as a downpayment would be an estimated $1,283. This does not include taxes or insurance. Now multiply that payment by 24 months and the cost would total $26,472 in principal and interest payments over that two year time frame.

If values held tight and that same homes was worth $200,000 tqo years later and Iif interest rates for a 30 yr fixed rate mortgagehad increased at the same time to 6%, your monthly payments would jump to $1,283 and at 6.5% they would increased even higher and ballooned to $1,345.

Over the course of 24 months the total cost in payments alone at a 6% over a 4.5% interest rate would be $180 per month to total $4,320, and at a 6.5% rate the monthly cost would be $242 more per month totaling $5,808

Now fast forward two years and theorize the value would potentially fall 10% to $180,500. If interest rates for a 30 yr fixed rate mortgage increased at the same time to 6%, your monthly payments would jump only to $1,158 and at 6.5% they would increase to $1,214.

Over the course of 24 months the total cost in payments alone at a 6% over a 4.5% interest rate would be $55 per month to total $1,320 and at a 6.5% rate the monthly cost would be $111 more per month totaling $2,664.

INTEREST RATES

The power of compounding interest. The lower your interest rate, the more principal you will pay on your loan early. The numbers above show a brief example of a cost estimate that may still leave you wondering why the numbers don’t quite even out. The reason being is I took a snipet only over two year year period to show the savings over that two year time frame.

To analyze the big picture and total cost savings as most people will stay in their home over a longer period of time, look at the overall 30 yr total interest and principal payment costs:

$200,0000 @ 4.5% total cost $359,046

$200,000 @ 6% total cost $423,568

$200,000 @ 6.5% total cost $446,162

$180,500 @ 6% total cost $382,270

$180,500 @ 6.5% total cost $402,661

Even if prices fall another 10% , the cost of a owning a Shakopee home will increase if interest rates goup more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be in the future.

Posted by

TOM SCOTT- broker/ agent

Remax Advantage Plus

Twin City Real Estate Team

612-384-2178

TomScott@Remax.com

www.MnHomesForSale.com

Serving the Mpls/ St. Paul areas and surrounding suburbs

 

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Rainer
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Bob Pfeiffer
McBride Kelly & Associates - Tampa, FL

Tom,

Just saw your blog - I agree with you on pricing - once the snow melts I bet your market takes off!  By the way, if you know of anyone looking to move to the Sunshine State, refer them to me and I will gladly pay a 30% referral fee on any resulting closed transaction.

Feb 21, 2011 06:32 PM #1
Rainer
51,311
Tom Scott
Remax Advantage Plus - Shakopee, MN
Re/Max MN Realtors and Real Estate Agent

Bob-

 

Sounds like a plan. I think we have seen a spring market already, things seem very busy. Just got 10+ inches of snow the other day so I'm sure that will tame things down a bit for a week or so :)

Feb 21, 2011 06:41 PM #2
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Rainer
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Tom Scott

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