A Little Bit of Luck and A Lot of Math

Buying a house right now is not easy, there is no way to sugar coat that, but with a little bit of luck and a lot of math now is still a great time for many buyers to purchase. While many people will say sellers have the advantage in the market today, buyers today have a clear advantage over buyers who wait. 

First let’s talk about the math. I will use the interest rates from MSHDA (MI State Housing Development Authority) as their rates do not fluctuate daily for a conventional down payment assistance loan. As of March 24, 2022, the fixed rate for this loan was 4.625%. According to the Greater Regional Alliance of Realtors (GRAR), the average sale price of a home in the city of Grand Rapids was $245,188.00 in February 2022. For round numbers we’ll use $245,000.00 in this example. The average sale price of $245,000 is up 20.2% from February 2021. If the trend continues, which many experts believe it will, that could mean the same home selling today for $245,000 would now sell for $294,000 in February 2023. While sale price is important to keep in mind, most of us have a loan on our house and make a monthly payment and that is what drives our decision on what we can afford. Now let’s factor in the math of that MSHDA interest rate with 3% down. Currently the $245,000 home at 4.625% interest (not factoring in any other things like taxes, insurance, etc.) with 3% down (which is approximately $7,350) has a monthly payment of $1,221.85. What happens if everything remains the same (interest rate and down payment percentage) and the same $245,000 is now $294,000 next year, how much will the payment be? The down payment of 3% is now $8,820 and the new monthly payment is $1,466.22. But let’s be honest interest rates will most likely increase, so now on a more realistic approach let’s estimate that the interest rate goes up a full percentage to 5.625%. The $245,000 with 3% down and an interest rate of 5.625% is now $1,368.05 per month, but the $294,000 with 3% down is now $1,641.66 month. The difference of approximately $400 per month in payment is almost $5,000 in a single year. 

What does all this math even mean? It means if you are waiting for interest rates to go down or housing prices to go down so you can buy later or next year, you are potentially costing yourself a lot of money. Buying the $245,000 house at today’s interest rate has a monthly payment of over $400 less than what we can predict the same house to be next year. Plus, by buying today you are building equity in the house you purchase.

Now that we understand the math, how do we account for the luck to get the deal done? Factoring in luck isn’t nearly as easy to explain as the math numbers above, but it can be done. While you may hear of buyers competing with 50+ offers or going $50,000 over asking price, that isn’t happening on every house. Timing is a big factor in luck. If there is not an offer deadline, the goal is always to see a house as soon as possible. If there is an offer deadline, we still want to see it early so that we can factor that into other houses we may see or possibly do a second showing. Sometimes when three or four houses come on the market in a small area, and buyers can only write an offer one at a time, they may pick the other one to offer on. From a selling perspective, sellers may love the idea of multiple offers, but just like buyers they can only accept one. So sometimes all it takes is a good strong, solid, and serious offer. Activity is another factor in how lucky we get. The more houses we can see will help you know when we come across one that fits your needs. The buyers that are seeing multiple houses with me each week and consistently writing offers, usually get lucky before buyers that are only seeing one house every other week. Part of activity and getting lucky is being open to suggestions you may not have expected such as different areas that could offer you a similar commute time than you expected, looking at houses that might not have the best photographs online or getting a little creative when looking past the seller’s design choices. 

With math and luck on our side we can absolutely get you the right house. Even if you lose some offers along the way, just remember as Frances Clark said, “There wouldn’t be a sky full of stars if we were all meant to wish on the same one.” 

Posted by Ariel Christy on
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