As housing affordability continues to be an impediment to many buyers, ways to make a home purchase available to a wider range of buyers is being explored. One way that popped up last weekend is a longer term mortgage, namely 50 years. The typical home loan today, and has been a staple for many years, is the 30 year mortgage. By extending the payback period, the principal amount of the loan payment each month is substantially lower, thus "saving" the purchaser money each month and making it more affordable from a cash flow perspective.

However, the interest rate charged on a 50 year loan will likely be higher, just as a 30 year loan is higher than 20 and 15 year loans, from 1/4% to 5/8% more. That, plus the fact that amortizing the loan (a calculated split between principal and interest) over a much longer period makes the principal paydown amount smaller each month, more noticeable at the front end, resulting in the loan balance dropping much slower over the life of the loan. Meaning you will have less cash proceeds when you eventually sell, or it will take you the extra 20 years to fully pay it off, if you stay there that long. Either way, you end up paying more interest from the very first month, and it gets worse every month because the interest is recalculated on the outstanding loan balance each month, which will be higher. That's a bad deal times two. Here is an article just written that gives pros and cons: How the math would work on a 50-year mortgage that Trump envisions

A 40 year loan has been tried off and on thru the years, notably 20 years ago when home prices were peaking before the Great Recession, but never caught on, mainly due to the reasons above, and they weren't promoted much. To learn more about the long history of home mortgages, click here A Short History of Long-Term Mortgages | Economic History | Richmond Fed, it is fascinating reading if you like that sort of thing like me! So to try a 50 year mortgage just to make it easier to get your "foot in the door" is not worth the tradeoffs to me.

This is a bad deal folks, do not fall for it! You may think it makes sense if you plan to be in the home only a short time, and the whole principal/ interest thing will not do much damage. If that is the case, why not do an adjustable rate? Your interest rate will begin lower, your payment will be lower, and you will pay down the loan balance faster. The downside is in a few years, when the adjustable ends and goes to a fixed rate, typically between 3 and 10 years, you may be pushed into a much higher rate. You want to be prepared for those higher payments, or be relatively certain you will either be moved by then, or have refinanced into a fixed rate, or even paid it off entirely.

Other ideas on how to beat or adapt to housing affordability can be found in a previous article of mine: Housing Affordability | Saint Louis Real Estate | Gary Hoeferkamp

As we head into late summer, the current housing inventory dropped 5% from September in the 6 submarkets I track. Here is an update on local, existing home sales activity as of November 12th:

• Manchester had 9 homes available and 17 under contract
• Ballwin had 40 homes available and 40 under contract
• Kirkwood had 50 homes available and 49 under contract
• St Peters had 78 homes available and 79 under contract
• Arnold had 18 homes available and 31 under contract
• Florissant had 116 homes available and 89 under contract

The ratios range from .77 to 1.9 pending sales for every 1 available, averaging 1.0 pending to every 1 available. My last comparison of these areas in September averaged 1.2 to 1 (and 2.8 to 1 in June 2022) with the available home supply DOWN 2% from August. That shows a continuing decline in inventory, very common with holidays approaching. The even 1 to 1 ratio in pending to available homes is on the brink of a balanced market, about right for this time of year and 3 years past the pandemic rush. Florissant is squarely in a balanced market with .77 to 1 ratio, with Manchester and Arnold in the strongest seller's markets. Some of the increased supply is the amount of older, smaller apartment-style condos that are having large increases in HOA fees due to insurance and maintenance costs. In Ballwin, Manchester and Kirkwood, if you are looking at single family homes in the 300k-500k range, they are still selling very quickly.

Mortgage rates are holding in the low to mid 6's. If they go below 6 into the 5's, watch out for spiking buyer demand, which would drive inventory down quicky, and show up very soon in my pending to active ratios, causing buyer competition and home prices to ratchet up faster than we have seen since 2022. I somewhat anticipate this to happen in the spring, which sellers will love, and buyers will kick themselves for waiting. Give yourself a new home for Christmas this year! You will do yourself a favor if you buy in the next 60 days. Come February, that's when the spring rush will start; competition jumps very quickly because of the low inventory over the winter, and buyers starting before the increase in sellers. By the time sellers catch up in April - May - June, the prices have jumped up several percentage points.

To move or improve in 2025, contact Gary to sell or buy (HRE), or for ongoing home and design management (HHC) in your current or new home.

Have a wonderful Thanksgiving!