Q & A With America s Real Estate Professor: Mortgage Interest Rates Rising
Mortgage Interest Rates Rising
Q. We've been trying to buy a first home and now interest rates have gone up - we can still afford it - but we're thinking it might be best to hold tight now for a while due to our payments that would be higher. Any opinion? Marvin M., Portland, Maine
A. Don't let a little increase in interest rates get you down. The average interest rate on 30-year-mortgage financing never crossed below its historical longer-term average of 6.0 percent until January 2009. It was always above that 6.0 percent rate beforehand.
Now the new real estate buyers, like yourself, seem petrified that mortgage rates went from 3.5 percent to 4.5 percent The main reason rates dropped to these historically low levels was because the U.S. Federal Reserve started an unprecedented bond buying spree a few years ago - in hopes of getting the economy moving again.
As the nation's finances start to do better, the Fed's bond buying is most likely going to end - probably in the next 12-18 months. When that buying binge ends, mortgage rates are going to head upwards again to 5 percent , 5.5 percent, maybe even 6.5 percent, if you can believe that!
So rates are still very low. I'd keep trying to find a great home. Buying a home should be a long-term commitment and if that is your plan, housing is still quite affordable based on property price and mortgage rates. You should continue on your quest to find a property that makes sense for you and lock in whatever rate you can get when you get ready to purchase your first home.
Artificial Grass Landscaping
Q. I'm considering doing the artificial grass landscaping, but it is so expensive! Why is it so pricey, and does it make financial sense? It does look pretty nice. Valerie B., Woodland Hills, Calif.
A. Some of it looks nice, some not so nice. All of it is expensive. The cost seems to be about $12 to $15 per square foot installed. So an average 30x30, 900-square-foot yard could be $10,000 to $15,000.
The professional companies that install it dig out several inches of dirt, put down crushed stone and sand, then lay the grass material on top and secure it. That's why it's very expensive. It's a lot of work to install it in this fashion. The reason they dig out dirt and use rock and sand is for drainage when it rains or for when dogs are "watering" it.
You ask, "Does it make financial sense?" Your potential cost savings are from less water use, which could save a few hundred dollars per year on an average yard, and more importantly, the cost of gardening and maintaining your yard. Those costs could be $0 per month for do-it-yourselfers or $75-100 for a typical household.
Get bids and then you can determine how much you would spend on an install versus how much you save over time. It's probably close to breakeven for a longer period of time - like a decade.
If the installer does a nice job, the manufacturers say it will last for 10+ years. But be careful and get references and go look at other jobs that your installer has completed. I've seen some sloppy installs where the seams show or they don't install all the grass in the same direction and it doesn't look very good. Since it's already cut at that point, it can't usually be fixed.
Regardless, make sure to get several bids, check those references and consider mixing in less expensive options with some artificial grass areas. Adding wood chips and decorative drought-resistant, low-water plants around the outer edge and fence areas of your yard could cut your costs.
Leonard Baron, MBA, is America's Real Estate Professor®. His unbiased, neutral and inexpensive "Real Estate Ownership, Investment and Due Diligence 101" textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com. Email your questions to: Leonard@ProfessorBaron.com