Hot market nudges up monthly payments

Buyers who make a move now can still benefit from long-term savings

07/27/2015

The new North Shore Bank / GMAR Home Affordability Report shows consistently higher monthly outlays on homes sold during the quarter ended June 30 versus the same period in 2014.  That’s no surprise given that median home sale prices in the four-county metro area have risen more than 10% this year, according to the Greater Milwaukee Association of Realtors.  Here are some examples, based on median sale prices at the lower, middle and upper price ranges for each municipality:

  • In Brookfield, a new buyer of a high-end home is paying an average $2,123 a month for principal, interest and taxes on a $412,500 home. A year earlier, a comparable home would have sold for $397,350 with a monthly payment of $2,069. Monthly increase as a result of waiting a year: $54.
  • In Cedarburg, a new buyer of a lower-end home is paying an average $1,034 a month on a $192,000 home, versus $931 on a $172,000 home a year earlier. Monthly increase: $103.
  • In Menomonee Falls, a new buyer of a mid-priced home is paying an average $1,223 a month on a $231,500 home, versus $1,183 on a $222,000 home a year earlier. Monthly increase: $40.
  • In Whitefish Bay, a new buyer of a mid-priced home is paying an average $1,930 on a $345,000 home, versus $1,752 on a $310,000 a year earlier. Monthly increase: $178.
  • In Pewaukee, a new buyer of a lower-end home is paying $656 on a $127,100 versus $643 on a $119,900 home a year earlier. Monthly increase: $13.
 
“The buyers are out there but there’s not that much for them to look at. As a result, we’re seeing a rise in construction loans.”
-- Stephanie Glowinski-Moeller, loan originator, North Shore Bank
With home prices and interest rates expected to keep rising, the cost of waiting is likely to go up too, said North Shore Bank Senior Vice President Michael Kellman.  “Say someone is currently looking at a $250,000 loan with a payment of $1,194. If the same house is sold for 10% more, the payment will rise to $1,310. That’s an extra $120 a month. And if you throw in a half-percent increase in interest rates from, say, 4% to 4.5%, the exact same house costs you $200 a month more.”
 
“There is every indication that interest rates are going to go up over the next year and so are home prices,” said Kellman. “People who buy now are going to have a savings on both fronts over people who wait until next year.”
 
Many home shoppers would be only too glad to follow Kellman’s “buy now” advice if they could find a place that met their needs. In many cases, the pickings are so slim that buyers are resorting to alternative approaches.
 
Sometimes, that means working with a Realtor who taps her or his personal grapevine to find the right house. “This year more than ever, I’ve had situations where, because of the lack of inventory, I’ve basically gone through internal networks to find homes,” said Realtor Jennifer Burns of Realty Executives Integrity. “I had a first-time buyer looking for a property earlier this year and they wanted Mukwonago, which is where I live. I reached out to several Realtors I know and found one who had a client who planned to list their house later in the spring after they’d done some work on it. That couple agreed to let us come in and take a look. My clients ended up buying it, which worked out great for everyone involved.”
 
Burns’ advice to home shoppers: “Find a good Realtor who has connections – someone who can use not only MLS but their personal connections to help you find a house.”
 
Today’s buyers sometimes also  tap their own networks, enlisting the help of family and friends by using Facebook and other social media to generate leads, said Century 21 Realtor Kel Svoboda. “Sometimes our job as Realtors these days is not so much to sell people a house and to facilitate a deal when they find a house they want. “
 
Svoboda said he has seen an influx of young buyers who are seeing the average cost of renting surpassing the cost of owning. “They’ve saved up a good down payment by living longer with their parents or a roommate and now they’re realizing it’s going to cost them if they keep waiting to buy.”
 
The lack of inventory is also driving more buyers to look at building, said Stephanie Glowinski-Moeller, a mortgage loan originator at North Shore Bank. “The buyers are out there but there’s not that much for them to look at,” she said. “As a result, we’re seeing a rise in construction loans.”
 
She explained that buyers who already are pre-approved to purchase a home of a certain value can easily switch gears to build the home instead. “They already know what they can afford. They’ve already got a loan commitment from us. And when they build instead of buy, they’re only paying interest on the draws that are taken to pay for the project as it goes along. So they save some money on the front end on interest.”
 
Realtors often are still involved, she added, noting that some builders pay commissions to agents. “They can represent the buyer in purchasing a lot, which can be very helpful when it comes to identifying and evaluating alternatives.”

View the latest North Shore Bank / GMAR Home Affordability Report

“We love construction loans,” said North Shore’s Glowinski-Moeller. “It’s exciting to watch the home go up and to stay involved with our buyers from beginning to end.”
 
As for homeowners who are thinking of selling, there’s no need to worry you’ve missed the prime season, said Realtor Burns. “We tell folks, ‘Take your time and get the house ready for showing. The good houses are selling and it won’t take long’.”

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