It’s no secret to anyone living in Miami that once again, real estate prices are up quite a bit. And if you’re a home buyer today, you are left wondering if you should buy now or wait.
This opinion is intended for the average family that is currently renting and could financially qualify to buy a home.
The biggest fear that you might have as a home buyer, naturally, is that you don’t want to overpay. And that’s perfectly understandable.
The great news is that banks won’t let you overpay! Not only will they require an appraisal of the property (which will be on the conservative side after the last financial crisis), but they also will only lend to people who can prove their financial stability, work history, good credit, and ability to come up with money for their down payment and closing costs.
Also, compared to the last boom, the foundation of the current real estate market in South Florida is much more stable.
Since the market crash of 2008, according to statistics from the Miami Association of Realtors, more than half of all properties were bought by cash investors and the other half, were bought by buyers who needed financing, and who needed to go through that extensive process of documenting their ability to afford the property.
Although we don’t have a crystal ball, the chances of these property owners simply walking away from their properties and letting them go into foreclosure are minimal.
Most people who ask me whether they should buy or wait agree that it’s not likely real estate prices will fall again by 50 percent like they did in 2008.
Some websites like Zillow forecast the Miami Dade median home price to go up 4 percent in the next 12 months. However, some seem to think that prices might fall 10 percent or so in the next couple of years. Even if that happened, according to a recent article in The Wall Street Journal, we can expect interest rates to keep going up.
So here are the most likely scenarios:
▪ Prices stay flat for the next two years, and interest rates go up 1 percent from 5 percent to 6 percent.
▪ Prices go up just 5 percent, and interest rates go up 0.5 percent from 5 percent to 5.5 percent.
Prices drop 10 percent, and interest rates go up 1 percent from 5 percent to 6 percent.
This is what monthly payments would look like based on the loan value, not including taxes and insurance:
▪ For the loan amount and interest rate: In Scenario 1, it would be $300,000 at 5 percent; scenario 2, $315,000 at 5.5 percent; and scenario 3, $270,000 at 6 percent.
▪ For the principal and interest payment: In Scenario 1, it would be $1,610.46; in scenario 2, $1,788.54; and scenario 3, $1,618.79.)
As we can see, the math doesn’t lie, and even if prices dropped by 10 percent and interest rates went up to 6 percent, the monthly loan payments would be very similar, about $8 more per month.
The difference is that you would have stayed renting for an additional two years and paying down someone else’s mortgage.
Alternatively, if prices continue to go up along with interest rates, the monthly payment will only be higher. If this happens, it’s likely rent prices will go up as well.
However, if you buy a home you like and can afford, at the current 2018 value and with today’s interest rates, you’ll not only get the fantastic feeling of achievement, pride and stability that comes from homeownership, but you’ll also lock in your housing loan payment.
This will allow you to better plan your savings for things like your kids’ college educations, retirement and even vacations.
Besides this, as a homeowner you’ll be able to take advantage of other financial incentives such as discounts in car insurance, improved credit score and being able to deduct the mortgage interest and property taxes from your taxable income, all while building equity.
The most important decision is simply to buy a home you can afford and that fits your family’s needs.
Besides that, from a financial perspective I’ll leave you with a great piece of advice I received from a real estate multimillionaire… “You don’t wait to buy real estate. You buy real estate and wait.”
Happy home shopping!
▪ This column, written for the Broker’s View space in Business Monday in the Miami Herald, is an opinion piece representing the view of the writer. It does not necessarily represent the newspaper’s view.
▪ Got a Broker’s View? Realtors may submit columns for Broker’s View of 700 words to to rclarke@MiamiHerald.com. This feature is intended primarily for residential brokers, who will be given preference, but pieces about commercial real estate will also be accepted as space allows.
Possible loan scenarios
This is what monthly payments would look like based on the loan value (not including taxes and insurance):
Loan amount and interest rate
$300,000 at 5%
$315,00 at 5.5%
$270,000 at 6%
Principal & Interest Payment