RISMEDIA, January 3, 2011—As the media continues to focus on the negative aspects of the real estate market, it is more important than ever for real estate professionals to help their clients understand that today’s market presents a once in a lifetime opportunity. Here, Earl Lee, president of Prudential Real Estate and Relocation Services discusses how real estate professionals must go above and beyond their job of helping clients make sound property decisions.
As real estate professionals, we pride ourselves on our ability to help clients make sound property decisions. We alert clients to opportunities, present the facts and then help clients assess options based on their needs and objectives.
Our challenge now is in presenting the home-buying opportunity of a lifetime to consumers besieged by bad news and sensational headlines and sound bites of a consistently negative press.
As I write this commentary, mortgage rates stand at historic lows, thresholds we haven’t seen since the Truman administration. Likewise, home prices on a national basis are significantly lower than their peaks of the last decade.
Housing affordability, as measured by the National Association of Realtors, stood near record highs in September. Consider the typical American home now vs. October 2006. Four years ago, the principal and interest payment on an existing home priced at the national median—$218,900—was $1,085 after a 20% down payment and with the prevailing 30-year fixed mortgage rate of 6.31%. That same home today sells for $171,700 and, with a 20% down payment and 4% fixed mortgage for 30 years, carries a principal and interest payment of just $656.
Prospective buyers continue to focus on price, yet I submit that interest rates will be the most fluid part of the home-buying equation over the coming months and beyond. As the world economy grows, so will the demand for natural resources, including lumber and other materials used to build homes.
I like to say the only time people really think about their home price is when they buy and when they sell. However, they think about their house payment every month and those payments won’t go much lower. If you are lucky and can squeeze another $10,000 out of that national median price of $171,700, you might lower your monthly payment by around $47 at current rates. However, a 1% jump in rates to 5% would add nearly twice that amount to the monthly payment.
Of course, this does not discount why many consumers are hesitating to enter the housing market. Slow economic recovery and job growth have most Americans concerned about the future. Still other consumers face negative equity or have dealt with foreclosure—challenges that must play out over time.
Yet for others, particularly those who’ve owned their property for more than five years and the growing ranks of those considering homeownership for the first time, housing and its long-term virtues of shelter, wealth-building and personal and civic pride are available at bargain-basement prices that should not be ignored.
Americans still believe that buying a home is a sound financial decision and a key part of their American Dream. They want a home for all the right reasons—as a place to raise a family, build for the future and face life’s opportunities and challenges. They believe in the home as a long-term asset, not a siding-clad automated teller machine.
Like always, it comes down to each of us educating our clients and helping them weigh homeownership possibilities and benefits. Our efforts will enable clients to capture an opportunity of a lifetime.