Low Rates + Low Prices + High Rents = Brisk Market

Here we are, nearing the end of summer, and despite the state of the economy, despite the lack of job growth, despite the warnings of impending doom, home buyers continue to buy.

In the first 7 months of 2010, 480 homes were purchased in Folsom. For the first 7 months of 2011, 585 homes were purchased, representing an increase of over 20%.  

Over 100 homes were sold in Folsom in each of the last 2 months. The last time that happened was 2005. 

So, what’s behind it? Will it last? Don’t these people read the paper? If they had, they’d have seen all of the bad news and would be convinced that this is a terrible time to buy a home, wouldn’t they?

I think it boils down to simple math.  Home prices remain low, mortgage rates remain at record lows and rents are on the rise.

For folks looking to buy their first home, or for those returning to the market, it can be as cheap or cheaper to buy than to rent.

Case in point; a 1500 square foot home in Folsom rents for about $1600 to $1700 per month, but can be purchased with as little as 3.5% down, with a total payment of  about $1750.  With 20% down payment, the cost would be closer to $1300.  Add in deductions for property taxes and mortgage interest, and many buyers are ignoring the news and deciding to buy.

Investors are noticing, too.  With a 25% down payment, that same home would have a payment of about $1250 per month. 

Some of the surrounding communities offer even better deals.  One of my clients is in contract to purchase a 5 year old, 1650 sq ft home in Rancho Cordova for $188,000, and another purchased an older home in excellent condition for $155,000.

As one of my buyers recently put it, ‘If the market continues to go down, I still need a place to live, and at least this one is mine.’

Will it last? We’ll see.  Sales typically tail off as summer ends and kids go back to school.  Time will tell if we’re seeing a trend, a rebound or a temporary bump. Stand by.