While the uncertainty of the coronavirus is having a dramatic effect on the financial markets, there is a silver lining for anyone that’s interested in buying a home.
Mortgage interest rates have been dropping quickly and are now the lowest they’ve been in the almost 50 years the government has been tracking them.
Do interest rates really affect how much home I can buy?
Absolutely! Here are two charts that show just how much dropping rates impact how much more house you can buy for the same monthly payment. (Please note all payments quoted are for payment and interest only and don’t reflect taxes, insurance and HOA costs which are unique to each property.)
The first chart gives you an idea how much more house you can buy now for a similar payment than you could have a year ago. In March of 2019 the avg. interest rate according to Freddie Mac was close to 4.5% and now rates are quickly dropping close to 3%. You can buy 15% more house now for the same mortgage payment than you could have last year (and even more if rates keep dropping).
But house prices are so high in Austin!
There’s no doubt that house prices have been rising in Austin for several years but they are no match for the savings you get on lower interest rates. According to the Austin Board of Realtors, the median price for a single family home in metro Austin rose 2.6% in 2019 ($318,000). Essentially buyers today are paying a 10%+ lower house payment by purchasing a house today than if they would have purchased that same house a year ago.
This chart shows what the monthly payment would be if a buyer had obtained a loan on a median priced Austin area home in that month.
If the economy sinks into a recession won’t house prices go down and then I can buy?
While I can’t predict the future, I can look at the past and make some educated guesses. Here’s a chart of the median Austin home prices over the past 30 years (Texas A&M Real Estate Center). As you can see there aren’t a lot of falling prices. This 30 year period even included the dot-com crash in the early 2000’s which hit Austin harder than most other US cities and the great recession in the late 2000’s, a real estate crash causing the most severe economic recession since the great depression. Even both of those economic traumas weren’t enough to drop prices but instead kept them at a plateau for a few years before they headed back up again.
Besides history, another major factor in determining the future of Austin home prices is this economic expansion’s lack of new housing. Unlike many previous economic booms, home builders were hesitant or just unable to keep up with the growing demand for housing in high demand areas. The following map from a Feb 2020 Freddie Mac Insight report shows just how far behind Texas is in keeping up with housing demands.
With housing stock so tight, the demand for housing in high growth cities like Austin most likely will stay relatively strong even in a recession.
It’s not the best time to buy for everyone
It’s understandable that some may be unsure about making a financial commitment in this uncertain environment. For those who are thinking long-term or are certain they want to buy a home in the next year or two, I encourage you to seriously consider taking advantage of this unique buying opportunity.