August, 2003 Newsletter
+++++++++++ August 1, 2003 +++++++++++++++++++
Mortgage Rate Update: Rates Take Big Jump
This Month's Tip: Overbuying: When Is It Too Much?
Introduction: Welcome to the August edition of the
Home Buyer's Newsletter. During the month of July, we
saw sales of existing homes fall somewhat, sales of new
homes rise and average mortgage rates take a big leap
Sales of existing single-family homes eased slightly last month
but were still at one of the strongest levels on record, according
to the National Association of Realtors®.
Existing-home sales slipped 0.3 percent in June to a seasonally
adjusted annual rate of 5.83 million units from a downwardly
revised level of 5.85 million units in May. Last month's sales
activity was 8.6 percent above the 5.37-million unit pace in June
2002, and was tied for the fourth highest month on record.
Monthly sales rates have been revised going back to 1989
using updated seasonal adjustment factors; there are no
changes to annual sales totals or home price data.
David Lereah, NAR's chief economist, said low interest rates
continue to fuel the market.
"The strong number of existing-home sales is consistent with
high levels of mortgage applications, new home sales and
housing starts," he said. "The slight easing of sales in June may
reflect some weakness in the labor markets, but historically low
mortgage interest rates are helping new households to afford
homes and allow existing owners to sell their homes and purchase
another – this is the primary reason we expect a new sales record this year."
On the new home side, sales of new one-family houses in June 2003 were
at a seasonally adjusted annual rate of 1,160,000, according to estimates
released jointly on June 25th by the U.S. Census Bureau and the
U.S. Department of Housing and Urban Development. This is
4.7 percent (±9.8%) above the revised May rate of 1,108,000 and
is 21.0 percent (±11.5%) above the June 2002 estimate of 959,000.
The median sales price of new houses sold in June 2003 was
$187,000; the average sales price was $243,500. The
seasonally adjusted estimate of new houses for sale
at the end of June was 345,000. This represents a supply of 3.6 months
at the current sales rate.
Mortgage Rate Update: Rates Take Big Jump
Although they are still historically very low, mortgage rates took
one of the biggest jumps in recent history during the month of
July. According to mortgage company Freddie Mac, average rates
for 30.-year fixed-rate loans stood at 6.14%, an increase of nearly
3/4% since the beginning of the month and nearly 1 full percent
since the recent low, in the period ending June 19th of this year,
averaging 5.21%. 15-year fixed-rate mortgages also rose to an
average of 5.44% after beginning the month averaging 4.63%.
What does the future bring for mortgage rates? Estimates of
both increases and decreases are all over the map, so it is
very difficult to sense a trend. Much has to do with the outlook
for the U.S. economy, though, so an individual can do their
own hedging for what they think the direction will be for
mortgage rates. If you feel confident that the economy is,
and will continue to be, in recovery, then you may need to
plan for higher rates. If, on the other hand, you are nervous
about the strength of the recovery, or feel that we may slip
back into recession, then the chances of rates going back
down could be a real possibility.
For current average mortgage rates, see:
For more information on mortgages, visit the Mortgage
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This Month's Tip: Overbuying: When Is It Too Much?
Few areas of American life indicate the belief that
"bigger is better" than the current trends in housing.
Although family size has declined noticeably since the
1970s (an average of 3.11 persons per family to 2.59)
the size of homes has exploded, with the average new
home size increasing from 1400 square feet in the 1970s
to around 2200 square feet (or more) today. Where it was
once pretty common to have a living room, dining room
and kitchen in addition to bedrooms, it is now not
unusual to find living rooms, family rooms,
great rooms, dens, offices, even media rooms all in
the same home. And, we have more bedrooms today
than in the past. It is much less common to have
children of the same sex sharing a room than it was
25 years ago. 4 and 5 bedroom homes are becoming
more and more common, even with smaller families.
With the increase in home size has come a number of
positive features. More families, for example, can
have enough space for amenities such as home offices
for computer equipment, children have the opportunity
to have their own bedroom and there are more informal
areas of the home for relaxation.
These larger homes, though, can wield a two-edged
sword. Buying or building more home than you need
(size strictly for the sake of size) can have some
obvious--and some not so obvious--negative consequences.
Consequences which can cost time, money and aggravation
that may not be expected.
When we speak of "too much" home it is not that we
believe that there is anything inherently wrong with
large homes--if they are needed and if they are
affordable. It is our belief that "too much" is
simply buying far too big a home for your needs and
stretching your budget to the limits (or beyond) to
do it. "Too much" is living in a huge home and not
having enough money to furnish it or enough financial
resources to enjoy any time outside of it. It is the
"McMansions" and trophy homes we see popping up all
over North America, purchased by many buyers who
can just barely afford them. We watch budgets pushed
to the extreme just to afford vacant space in a larger
home. We see people "upgrade" from perfectly adequate
homes to mini-mansions and then watch them as they
have difficulty making ends meet.
Impacts: The Obvious
The most obvious impact, of course, is the additional
costs associated with a larger home. In virtually
every instance, a larger home will cost more to buy or
build than a smaller home if all other factors (e.g.
quality, condition and location) are equal. More
square footage means more money out of your pocket,
pure and simple. Higher costs will also equate to
more interest charges, and, of course, a higher
Other obvious costs are additional heating and cooling
costs, additional costs for electricity, higher
insurance premiums, higher property taxes and more
upkeep, repair and maintenance costs throughout
the ownership period. These additional costs can
add 10%, 25%, 50% or more to your monthly housing
Impacts: The Less Obvious
One of the less obvious consequences is the need to
furnish and decorate all of the extra space found
in these larger homes. For some reason, many buyers
are unable to conceptualize the empty rooms that
will need furniture, window treatments and the like.
This is no small expense when you are starting out
from scratch. All of that extra space will mean
lots more expenditure, and since the extra space
will be "permanent" the extra costs will continue
as long as you own the home.
Another less obvious but important consequence
may not be even considered until years later when
it is time to sell the home, and that is the
resale value. As the population ages (and if
families continue to decrease in size), big
homes could become less popular than they are
today. This could mean that the premiums that are
being paid for large homes in 2003 may have little
or no return in 2015--the extra money spent would
be lost. This loss can be justified, to a great
degree, if the additional space is necessary.
But a large home of unnecessary size becomes not
only wasted space but wasted money--money hat is
lost during the ownership period and then again
when it comes time to sell.
This "downsizing" process may already have begun.
Reports from the National Association of Home
Builder's convention in Las Vegas indicate that
some of the homes shown there in 2003 are actually
smaller than those in recent years. This may not
have a huge impact on home purchases and building
today, but may signal a shift in the trend.
One final factor that is rarely considered is the
way that these huge homes tend to decentralize
the family. With so much space to be "utilized",
we see more and more families spending more and
more time away from each other--even though they
are under the same roof. We've actually seen
2 members of a family communicate over the internet--
through instant messaging--while they are in the
Buying as much home as you need--and possibly a
bit more for breathing room--is a smart approach
to home ownership. Buying wasted size and space,
though, for whatever reason (ego, keeping up with
the Jones, fads, etc.) usually is a pretty poor
financial move. Even if you are able to recoup
the additional purchase expense of the home,
you will most likely never get back the money
wasted on unused and/or unneeded space that is
spent on utilities, furnishing, decoration, taxes,
insurance, etc., etc.
Next Month's Topic: Sharpening Your Budget
The Home Buying Checklist
Many of our visitors have said that one of the most valuable
aspects of the Home Buyer's Information Center is the
Buying Checklist, where they can make sure that all
the bases have been touched. You can find the checklist
A special thanks to all those who have written to let us know
that they have found the Home Buyer's Information Center a
helpful resource in their buying process.
Have a great month and good luck in your home buying process!
The Team at the Home Buyer's Information Center