What will it take to get YOU off the fence?

There is an article today in the Seattle Times about incentives that could be offered to home buyers over the next months to get people off the fence and inject some life into the national real estate market. http://seattletimes.nwsource.com/html/realestate/2008392490_harney16.html
The incentives proposed come in the form of interest rate buy-downs (subsidized by the federal government) and down-payment tax credits.

Some of the ideas being pushed by lobbying groups seem a little far-fetched (interest rate of 2.99% for people who make a purchase before July 1, 2009) but the basic ideas could be just what are needed to get things moving in the right direction.

How to put this in terms that translate to the Bainbridge real estate market? Follow my process below…

In the past 6 months, the median sale price of a home on Bainbridge Island was $576,000. Assuming a 20% down payment and a 6% interest rate for a 30-year fixed rate loan, the monthly principle and interest payment would be $2762.73. Over the life of the loan the interest paid to the lender would be $533,781.20. Now, if there was a federal subsidy to buy the rate down by 1%, as discussed in the article, the numbers would be: monthly principal and interest payment of $2,473.67 ($289.06 less per month) and the interest over the life of the loan would be $429,724.60, a difference of more than $104,000.

The $100,000 savings over the life of the loan is a pretty staggering number. And for many people, a difference of nearly $300 per month really does make a difference in their lives. Put that in terms that are real to your monthly budget: a car payment, a proportion of child care costs, home heating, etc. I don’t know many people who are in the market for a median-priced home that couldn’t use an extra $300 per month.

What about those of us (me included) who bought a house in the last 2 to 3 years and have seen our house values fall? I think we would all benefit from incentives that got the housing market moving again. Such incentives will help things move along and stop the freefall of housing prices, followed by an eventual appreciation of the asset. This will be good for our entire economy, not just the housing sector.