A couple of years ago I did an analysis of the tradeoff between assessments and purchase price when buying a condo. In that analysis I concluded that with mortgage rates of 5% a condo assessment that is lower by $100 per month would allow you to purchase a condo that costs $41,311 more. In other words, economically there is no difference between a $500,000 condo with a $600 per month assessment and a $541,311 condo with a $500 per month assessment. In other words, you can spend a lot more money on a condo with lower assessments. In other words, a lower monthly assessment is worth a lot of money.
But what happens when mortgage rates drop to 4%, which has happened in the last 2 years? As I mentioned in yesterday's post the cost of a mortgage is reflected in the interest component of the monthly payment. Well, when your interest rate goes down you can spend even more on a condo without raising your monthly expenses because the cost of the higher purchase price has gone down.
So how does a drop to 4% affect my assessment evaluation from 2 years ago? Repeating that calculation I determined that the equivalent purchase price differential has gone up from $41,311 to $52,007. As Bob Padla* used to say, "That's a lot of jingle!"