Ask The Realtor

As printed in the OC Register / Saddleback Valley News

Written by Jim E. Flynn, Century 21 Beachside Realtors, Lake Mission Viejo

July 31, 2008

How do we make money if we sell low and then buy low?

Q. Gloria from Lake Forrest asked: I read your last column about "When is the best time to buy and sell." But we are still a little unclear about how we "make out" if we now sell low but then buy low?

A. Consider the "savings" on buying your new home if you are planning to move up from your first condo to a $500,000 house, which is certainly now available in our South Orange County market. But a serious buyer might possibly buy that house with a 10 percent discount offer or $450,000. This would mean a savings of $50,000.

Now, we can just review our selling and buying numbers:

1. If, for example you "lost" $30,000 on the sale of your home

2. But you "made" $50,000 on the purchase of your new home

3. Doesn't that put you $20,000 ahead?

Also a consideration is the impact of interest rates. Buyers and sellers should always consider which way interest rates are moving. Are they moving up or down? If interest rates are near an all-time low and beginning to inch upwards, as they are now in Orange County, waiting could cost you more than most buyers think.

Some approximate rule of thumb considerations

Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.

Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.

Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.

Finally, as a buyer, you should look at the differences among purchase prices versus interest rates. Here are some approximate considerations: If you put down 20 percent and qualify for an 80 percent loan, here are your principal and interest payments on the following purchase prices:

$425,000 sales price, at 8.25 percent interest, your payment is $2,554.

$450,000 sales price, at 7.75 percent interest, your payment is $2,579.

$475,000 sales price, at 7.25 percent interest, your payment is $2,592.

$500,000 sales price, at 6.75 percent interest, your payment is $2,594.

$525,000 sales price, at 6.25 percent interest, your payment is $2,586.

The payments are almost identical. However, here is the big difference - the home you can afford to buy at 8.25 percent is $100,000 less than the home you can afford to buy at 6.25 percent. If you wait for prices to further decline, the perceived value could be lost due to higher rates.

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Q.  John D. in Mission Viejo asked:  After the 4th of July weekend and holiday beach activity etc., aren't many sellers now pulling their homes off the market in Mission Viejo?

A. No, that's not happening.  I see new listings and price changes nearly every week. I phoned Joann Frank in OCAR marketing, who advised that as of Tuesday, July 29 there were 560 active listings in Mission Viejo.
 

Jim Flynn is a Realtor with Century 21 Beachside Real Estate in Mission Viejo. He has more than 30 years of home sales experience and belongs to the county, state and national associations of Realtors.

Original article in The Register 

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Jim E. Flynn
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