Monday, July 12, 2010

"Price Reduced" - What Happens to Mortgage Payments When June's $300k Home Is...August's $285k Home...And October's $270k Home?

Years worth of mortgage payments are lost if the "comparable" home sells at "price reduced" a few months from now--or a house that is already mortgaged loses value.  See charts below, which use as an example a house priced at the "First Time Homebuyer" level of $300k.

Check out Trulia for daily price reductions.  Contracts: April saw a bump up, while May saw a plunge and June's Cville Albemarle contracts are at an 11 year low. 

Area sales got a boost in the first half of 2010 due to the Federal Homebuyer Tax Credit that expired April 30, with closing by June 30, 2010.  Going forward, it's another story.

The below mortgage calculations are based on a 5% interest rate, and a 3.5% downpayment, which is what is required, with "good" credit, for an FHA 30 yr fixed.   The numbers don't  include the loss of agent fees, closing costs, upkeep, upgrades, HOA, etc., when prices decline.

Click for larger images in new windows.

House priced $300K:

Buying for $15k or 5% less, $285k w/ 3.5%down, means 4 years of payments have been wiped out:

House priced $30k or 10% less, $270k, puts June's buyer at even more of a disadvantage:

Input your own numbers in the mortgage calculator, which appears in the sidebar at The Mortgage Buzz.

Nationally, housing will see more price declines due to high inventory, lack of demand, unemployment, foreclosures.   Foreclosures have soared and are moving to the high-end.  Meanwhile, inventory is at record levels.  So what constitutes a Lowball Offer in this area?

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