Relationship Between Real Estate Market Values, Interest Rates and Property Taxes
Jun 19, 2009 Real Estate Properties
Top Sites For Real Estate:
Market value is the most critical factor in any avenue of real estate; everything is tied to market value and market values are constantly fluctuating. Understanding real estate equates to knowing how to calculate market value, basically understand how to conduct your own appraisal. The irony is that appraisal is not widely known even among real estate experts. Appraisal is not hard, it is not complex and the crucial element to everything in real estate. Whether you are purchasing a house, refinancing, reducing your property taxes, investing, etc. everything is in relation to market value and the funny thing is that real estate market values are constantly changing. Real Estate values are always changing so the key is: knowing appraisal and how market values are calculated. When you understand appraisal and how market values are determined you will have the tools needed to work with your financial institutions on loans and your Assessor on property taxes. The California Little Black Book and the National Little Black Book walk you through the appraisal process step-by-step so that you know how to determine your market value and this is a tool you can use over and over again. Once you have the tool, the Little Black Book, you can appraise an infinite number of homes.
There is an inverse relationship between real estate market values and the interest rates. When housing values are high normally the interest rates are down as opposed to when the real estate market is down the interest rates are high. In the 1990s the real estate market was down and the interest rates were in the double digits. I can recall when 11% was a great mortgage interest rate.
Housing values started climbing in 2001 and the interest rates decreased as the housing market continued to increase. What the banks make in principal they off set with lowering the interest rates and inversely when the market values are lower this is off set by increasing interest rates. The bank is always making their money one way or another and this helps control inflation.
Real Estate markets like the one today, where the housing prices are decreasing and the mortgage rates are low as a result of the Fed attempting to stimulate the economy, inflation increases. The economy functions on a balance and when that balance is disturbed it creates inflation. The banks may be doing better if they could get more in interest on the funds loaned out. This is one of the causes of the mortgage and housing crisis. Increasing interest rates may stimulate spending indirectly by giving the lending institutions more on their money, banks will be more inclined to loan out money.
Housing values and interest rates off set each other, so when they are both down it seems to be a good real estate market, and with all of the financial institutions that are going through bankruptcies and shut downs we are seeing the results. Something has to give and the banks are suffering and consequently the we are suffering also since not as much money is being loaned out.
An inverse relationship with real estate values and interest rates begs the question: Is it better to purchase in a high housing market with low interest rates or a low housing market with high mortgage rates? My personal opinion on this is that if you buy in a high market with low rates theres no where to go from there. Your interest rate is low and so it doesnt make sense to refinance and so you are stuck with that huge principal balance. However, if you buy a house in the midst of a low housing market with a high interest rate then your principal balance is low and you can refinance when the interest rates go down. Your interest rate can change; your principal balance doesnt unless you modify your loan. Generally, speaking though your principal balance is a constant and your interest rate is a variable.
The greatest cost you will have with your property is always your mortgage and the next highest cost normally is your assessment. The great news is that a low housing market allows for a lower assessment which means lower property taxes. Whether you have bought in a high housing market or a low one you can ensure you are paying the least amount possible in property taxes! In almost every state property taxes are tied to market values so educating yourself on appraisal and the property tax system will give you the most power in terms of lowering your property taxes. Education on how to understand market value is the key to every door pertaining to your residence including reducing your property taxes (assessment).
About the Author: Valerie Faltas, Property Tax Expert has been involved in all facets of real estate for over ten years including assessments, appraisals, estates and trusts, investing and much more. She is a Certified Property Tax Appraiser, Licensed Residential Appraiser and a member of the International Association of Assessment Officers. As a real estate investor and advisor she is well versed in all aspects of real estate. To contact Valerie Faltas go to her website: www.propertytaxlittleblackbook.com.
Related Articles
Tags: a, appraisal, assessment, assessment appeals, e, economic stimulation, f, finance, h, home;improvement, housing, i, Interest Rates, m, Market Values, Mortgage Rate, n, o, p, Property Tax, r, Real Estate, Real Estate Properties, real;estate, Recession, s
Leave a Reply