When home prices increase in an area, the highest percentage increases happen for the lowest priced homes. The greatest demand in any market is for the most affordable homes. For example, 711 Nobility in South West Medford sold for $223,000 in December of 2015 and then sold again five years later in December of 2020 for $320,000. This is a 45% increase in just five years which is a higher percentage increase than homes selling at higher price points. The “Delta Effect” is the effect that makes is easier for owners of lower priced homes to upgrade and afford a higher priced home, sometimes upgrading without increasing their monthly mortgage cost.

The other major factor that affects home affordability is the interest rate. Most of us thought we had seen the end to the lowest interest rates since the great depression, but then came the pandemic and interest rates plunged again! As of January, 2021, the average 30-year fixed interest rate, per bankrate.com is 2.88%, which is an all-time low during my lifetime.

When you add these two factors together, the “Delta Effect” and all-time low interest rates, many buyers can upgrade and get a much nicer home without increasing their monthly mortgage payment. Let’s look at the numbers for an actual client of ours. She bought her first home in March of 2019 on Sharon Way in White city – a 2 bedroom, 2 bath, 922 square foot townhouse with a small backyard and a one-car garage for $190,000. Her loan covered 100% of the purchase price, with zero down, with an interest rate of 4.625%. She wants to know what she can spend on a new home without increasing her monthly mortgage payment. So, if she sold her home, used her equity and took advantage of the lower interest rate, what can she spend on a new home? 

Recap of the Sharon Way purchase: 
•    $190,000 Purchase price 
•    $186,428 Current Balance of the loan 
•    4.625% USDA 100% loan – Zero down 
•    $220,000  Current value of the property 
•    $986 Monthly mortgage payment 

Recap of what she can purchase now with the same mostly mortgage: 
•    $220,000 current value of her home
•    $33,500 Down Payment, derived from her home equity 
•    2.88% Interest Rate 
•    $996 monthly mortgage – $240,000 financed at 2.88%
•    $273,500 is her budget for a new home. $240,000 financed at 2.88% and $33,500 down payment coming from her equity.

With a budget of $273,500 she can move to a nicer neighborhood, afford a larger house with a larger backyard and hopefully a 2-car garage. 

The Delta effect, low interest rates, and the loss of homes in Phoenix and Talent by fires have all caused the hottest sellers’ market in years.  When she is ready to sell her townhome, she will most likely have multiple offers exceeding her $220,000 expectation. The lowest priced home listed for sale in White City is currently $259,000. Conversely, when she goes to buy her new home, she will have to keep in mind that she will have lots of competition and most likely have to give the seller more than they are asking for.