Paul's Bellingham Blog

My thoughts on Bellingham, the Real Estate market, and more

Renting May Get Pricier

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I have read multiple reports in the last few months forecasting that rental rates will be increasing soon. Nationally and locally, demand is picking up, which is expected to put upward pressure on rental prices.

Peggy Alford, president of said:”The demand for rental housing has already started to increase,”Young people are starting to get rid of their roommates and move out of their parents’ basements.”

By 2012, Alford predicts the vacancy rate will drop to 5 percent, causing prices to rise.

In Bellingham, the rental market is always strong, driven by the simple laws of supply and demand. The population continues to grow, while we don’t see much new development (especially in the last 3 years). Western Washington University will always be an additionally driving factor towards the steady demand for rentals in Bellingham.

So this reminded me of one of the best benefits of long term home ownership that is often overlooked. The simple fact that when you lock in a 30 year mortgage, your payment is fixed. Where as renters have to deal with small incremental rises in rent, year after year–and renters are completely exposed to inflation.

Today the same 3 bed 2 bath home in Bellingham might be $1,300 to rent, and $1,500 on a mortgage payment (with a low down payment). But what will the rent be in 3 years? Or 6 years? It may be $1,600, and now the buyer with the mortgage payment of $1,500 has the lower payment..Not to mention the owner is getting the tax deduction, and they are paying down a mortgage and creating equity for themselves…But everyone knows about these other benefits…

The point is simply that the stability of a fixed mortgage payment is an incredible benefit of home ownership too often overlooked!

Lower Rates Gives You More Purchasing Power

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Did you know that for every 1% mortgage rates increase, you lose 9% of your purchasing power? Right now, rates  are being held down artificially low, with the fed purchasing up to 80% of the bonds for sale. If we get more and more news this year of the economy stabilizing, the Fed will certainly turn their attention to curbing inflation, which will result in rates increasing. Currently rates are hovering in the low 5’s, but many experts predict they could be back up to around 6% by the year end.

If you buy a house for $272,500 with a 5% interest rate, you would need to get that same house for $250,000 with a rate of 6%, to have a similar costs of home ownership. money_tree

I find that buyers tend to be more focused on getting that extra $5,000 off the house price, than being concerned about locking in at the lowest rate possible. I suppose this is because it’s much easier to do the math on the $5,000 off the price than it is the .025% off the payment on a 30 year amortization. My point  is that as much as we all hear about “historically low interest rates”, buyers still tend to underestimate how big of an impact these lower rates have on their purchasing power, and how incredible this opportunity is today!