At Northview Bank we have seen the year begin with a bang. Applications, inquiries, and closings have all been strong. The question we all want to know is “How long will it last?”
Obviously that can be hard to predict and many people try to predict markets of all types and fail miserably. That being said, I do have a few thoughts as to what we may see.
We expect this year to be exceptionally good. Prices seem to have leveled off overall and are rising in certain areas. In some markets we are even seeing multiple-offer scenarios. It appears we’ve reached that magical place where supply and demand are catching up with each other. And this is excellent news for sellers as it was difficult to discover any motivation beyond price in a saturated market with enough inventory to fill demand for five to ten years.
We are still in an extremely low interest rate environment. Lake homes are at one of the most affordable levels we have seen in our lifetimes. Prices have come down considerably and when combined with the extremely low rates, payments are very affordable.
Although rates will invariably rise we don’t see them getting out of hand this year. If we take a lake home that was priced at $100,000 in 1995 when interest rates were 7.5% the monthly payment on the 30-year mortgage would have been $700. Over the life of the loan a person would have invested $252,000 in to the property.
By the time 2005 rolled around that same place would have gone up to $200,000. Although rates had fallen to 5.75%, the payment would’ve shot up to $1,167 and the total for the payments over 30 years would’ve been $420,120. Today that same place would end up somewhere in the middle—probably about $150,000. If the rate was 3.75% (they are always fluctuating) the monthly payment on the 30-year mortgage would come out to just $695, for a total of $250,200 spent.
That means that though the 2015 buyer spent $50,000 more on the property, they actually paid $1,800 less over the life of the loan than the buyer in 1995. It’s a crazy world when a person can spend 50% more and still save money!
Buyers know these facts and they are motivated. They are tired of waiting and not moving forward with their dreams. Buyers realize that if they don’t do it now they may never get this opportunity again: not only will rates go up, but prices are increasing as well.
Couple that with the fact that their kids or grandkids are getting older and people want to have a place to retreat to form memories and buyers are feeling some urgency. If prices were to remain stable and rates went up just 1% (from 3.75% to 4.75%), payments on a $150,000 property would rise to $782.50 and over the life the life of the loan a buyer would invest another $31,500. If the rate went up 2% (a rate of 5.75%) the payment would climb to $875, which would amount to $64,800 additional dollars spent on the same property.
We look forward to what this year will bring and we look forward to working with you. At Northview Bank we remain committed to the vacation property real estate market. Whether you or someone you know is buying land, a lake lot, or a lake home, please think of us.