“Really? My Neighbor got $300/PSF Last Spring…”
Just got off the phone with a friend discussing the value of his home in Uptown New Orleans. It is a lovely house on good street in a good neighborhood. When I shared what the market is saying, he was surprised that the number was lower than $300 per square foot (PSF). This is a constant reply we hear and there are many reasons a home may not be the same value as a neighbor’s. Here are a few of the reasons:
- Size: small homes and largest homes in our market typically command the highest rates per square foot.
- Supply/Demand: At the smaller end, there is great demand for less expensive homes. So the price per square foot goes up because the total dollar cost (psf x sqft).
- Loans: Loans less than $424,100 are typically called “Confirming Loans”. This means the lender can sell the loan to government buyers Fannie Mae and Freddie Mac. As a result, there is a lot of competition for this loan type and competitive rates.
- Market: This year isn’t last year’s market! Last year there were more people willing to pay higher prices. We have been exploring why but can’t pinpoint any scientific answers.
- Interest Rates: May of 2016, the typically interest rate for a conforming 30 year loan was 3.695%. Today loan rates (March,5 2017) is 4.31%. On a $400,000 loan with 30 year fixed term, a monthly payment would have been $1,840 in May of 2016 and would now be $1,982 or $142/month more. Over 30 years, that adds up to over $50,000 dollars more interest over 30 years. While this amount is small, it is much larger once one considers that a many loan underwriters are willing to write loans up to 30% of the applicant’s income. So a $1,700 increase in year debt service requires a little over $50,00 more yearly income.
In summary, markets are changing everyday. What’s true today isn’t guaranteed tomorrow. Comparing your property to your neighbors who recently sold could be bad for everyone involved.