Interest Rates

If you are worried about interest rates, consider yourself lucky to be buying a home now rather than the 1980s or 1990s. To date, mortgage rates have averaged 6.7 percent during this decade. At that rate, the monthly principal and interest payment for a fixed-rate, 30-year, $200,000 mortgage is $1,290. 

In contrast, the average mortgage rate during the decade of the 1990s was 8.3 percent, bringing the monthly payment on a $200,000 loan to $1,590.  During the 1980s interest rates were even higher, averaging 11.7 percent. At that rate, the monthly payment on a 30-year, $200,000 mortgage is $2,011 – an increase of $700 from what you would be paying today. To receive current and historical data on interest rates, click here and then go to page 15.

Population and Household Growth

If you are concerned about the future value of your home, consider that demand for housing is driven primarily by two key factors – population and household growth. The Census Bureau projects that U.S. population growth will surge by 40 million between 2005 and 2020 and that the number of households will jump by more than 6 million between 2005 and 2010. It is estimated that the home building industry will need to build 18 million new homes over the next decade just to keep up with population and household growth.

Consider the increasing scarcity of available land in metro markets where jobs are located and where people want to live. As inventories wind down, demand will rise and so will prices. As the economy continues go grow, create jobs and increase household income, all these factors bodes well for future house price appreciation. To view population growth in your market, click here and then go to page 16.

Housing Cycles

Housing has always been a cyclical business. The industry has worked its way through tough times before and is poised to do so again. Consider three previous housing peaks and troughs as registered by the Census Bureau:  

Date                                        Single-family production        Percent Change

Peak – Jan. 1973                     1.431 million                             53%
Trough—Feb. 1975                    667,000

Peak – Dec. 1977                    1.53 million                               66%
Trough—Oct. 1981                    523,000

Peak – Feb. 1984                    1.400 million                             57%
Trough – Jan. 1991                    604,000

Peak – Jan. 2006                     1.837 million                             48%
Trough – Sept. 2007                  963,000

On a percentage basis, the current fall in production is far less than in previous cycles. As a long-term investment, homeownership remains one of the best investments for individual households, with a track record that is virtually unmatched by any other purchase in terms of its real benefits.

The median price of a new home in 1991 – the year of the last major downturn – was $120,000. In Sept. 2007, the price had virtually doubled at $238,000.

Household Balance Sheet

Today’s households hold $21 trillion in real estate assets – greater than the total value of all the stocks and bonds on Wall Street. Of this vast amount, America’s home owners have $10.85 trillion in untapped equity in their homes that provides a good cushion against any recent decline in home values. It’s also important to remember that 37 percent of all single-family homes are owned debt-free – without any mortgage.

Delinquency Rates

The overall national delinquency rates on home loans was 5.12 percent in the second quarter of 2007, according to the Mortgage Bankers Association. This is well within historical norms. For example, in the past 10 years, delinquency rates hit a national low of 4.03 percent in the first quarter of 2000 and peaked at 5.35 percent in the third quarter of 2001. 

Today, more than 97 percent of prime borrowers – the bulk of the mortgage market – are up-to-date on their payments. The problem is in the subprime market; nationally, about 15 percent of subprime borrowers are behind on their mortgage payments.

About two million subprime loans are due to reset over the next two years. Obviously, most of these loans won’t go into foreclosure, but it’s still a major problem that needs to be addressed. The truth is, the vast majority of home owners are making their mortgage payments on time and very few are in danger of losing their homes.

New Home Characteristics

New homes today are larger, far more energy efficient and have more amenities than ever before. The average new single-family home built in 2006 was 2,469 square feet, more than 30 percent larger than a typical home built in 1976.

The percentage of new homes with 2.5 or more baths in 2006 was 59 percent, compared to just 22 percent in 1976. Thirty-nine percent of new homes built today have at least four bedrooms, compared to just 20 percent for those built in 1986. Today, nearly 90 percent of all new homes have central air conditioning – vs. less than 50 percent in 1976.

More than 80 percent of modern homes have at least a two-car garage, up from 59 percent in 1976. And today’s homes are built for the wireless age, with high-speed data access, modular wiring systems and multiple telephone lines. To view a comparison of new home characteristics by decade from 1976 to 2006, click here.