“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:

  1. Size: small homes and largest homes in our market typically command the highest rates per square foot.
    1. 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).
    2. 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.
  2. 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.
  3. 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.