- The Washington Times - Wednesday, June 8, 2005

Housing sales prices keep breaking records quarter after quarter on a national level. The Office of Federal Housing Enterprise Oversight’s first-quarter 2005 numbers show a 12.5 percent increase in home prices over the first quarter of 2004. That’s the largest jump since third-quarter 2004 — which represented the highest quarterly jump in more than 25 years.

The National Association of Realtors confirmed the high price index recently with its existing-home-sales index hitting a record high in April, “defying expectations of a modest slowing trend in 2005,” according to its Web site (www.realtor.org).

“Single-family home sales rose 4.5 percent in April to a record seasonally adjusted annual rate of 6.28 million from a level of 6.01 million in March. Last month’s sales activity was 5.0 percent above the 5.98 million-unit pace in April 2004. The median single-family home price was $203,800 in April, up 15.1 percent from a year earlier,” the Realtors group reports.

The cost of housing has always reflected the largest investment for most people. Income has not kept pace with the price of housing in many metropolitan areas, putting pressure on mortgage providers to find more creative programs so people can buy homes that, at first glance, appear financially out of reach.

The fastest-growing mortgage product today is the interest-only adjustable-rate mortgage. It starts with a low interest rate, and the consumer has to pay back only the interest on the loan, hanging his or her equity-growth hopes on appreciation rather than paying down the loan.

As home prices increase, purchasers are seeking the ever-elusive low-payment mortgage. Even with low-interest, low-payment mortgages, it’s hard to make even that payment work. Or is it?

For many, it’s not about whether you can qualify to purchase a high-priced home, but the comfort level in your mortgage payment. You can always go with an interest-only or the revived 40-year mortgages to push down the monthly payment, or you can start tightening the belt and develop a real, livable spending plan.

A savings of a few hundred dollars per month dedicated to your housing payment can make the difference.

For instance, $100 per month in today’s low-interest mortgage programs represents buying power of $17,135 with a 30-year fixed mortgage at 5.75 percent. While that might not sound like a lot, buyers have a threshold of financial pain, as it were, and it apparently starts happening in $5,000 increments.

“I don’t have a problem with a $300,000 mortgage, but I just can’t see going up to $305,000 or $310,000,” they’ll say. But then, they’ll hang onto the $130 cable TV bill, a payment that could be converted into more than $22,000 worth of buying power at 5.75 percent interest.

It’s the payment that scares people. With taxes and insurance, a $322,000 mortgage at that interest rate can surpass $2,000 — which, I might add, seems to be the new threshold of pain so far as mortgage payments go.

I remember when people used to think $1,200 per month was outrageous. Now, many home buyers would give their right pinky to have such a “low” payment.

What’s keeping you from purchasing your dream home? Is it the cable guy or some other luxury item you just can’t live without?

Below, I’ve calculated some monthly payment items and what they could purchase in regard to buying power if you were to cancel them and put them to work for you in a 30-year, fixed-rate loan at 5.75 percent interest.

• Premium-channel cable TV: $100 per month = $17,135 in buying power

• Lawn service: $60 per month = $10,281 in buying power

• Cell phone, 2,500-minute family plan: $150 per month = $25,703 in buying power

• Dinner out at $50 per week, $200 per month = $34,271 in buying power.

These items, for a monthly total of $510, represent more than $87,000 in purchasing power that you could apply toward your mortgage.

Although you may not be able to cancel all these services, you can reduce your output so your budget reflects more real estate buying power. There are plenty of other items you could eliminate or reduce in your own budget that would increase your buying power.

Another thing to keep in mind about mortgage payments: The average consumer hangs on to the mortgage for about five years. You’re not making a permanent decision. Also, most household incomes increase over the years; thus, what is expensive today could become more reasonable in the future.

Finally, real estate has consistently beat inflation and the stock market over the long run. The extra cash you throw toward it has proven to pay for itself over the years.

M. Anthony Carr has written about real estate since 1989. He is the author of “Real Estate Investing Made Simple.” Post questions to his Web log (https://commonsenserealestate.blogspot.com).

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