Well, I promised I’d work out some figures on the loan for a hypothetical buyer who purchased a home in El Dorado Hills in July of 2005 versus July of 2006. Let’s assume that each buyer purchased a 2900 square foot home and that the purchase price was that number times the average cost per square foot for each July. So our 2005 buyer got a 2900 square foot home at $738,247, while our 2006 buyer paid $729,000.

And let’s also assume that they locked their loan in the middle of June — a reasonable assumption for a thirty day escrow. As luck would have it, Freddie Mac’s web site is being kind to us, since it turns out that for a thirty year fixed loan, the rate quoted for June 15 2005 and June 15, 2006 both are quoted at the rate a buyer would pay with at .5 points. This means we don’t have to adjust the quoted rate based on different points, we can just ignore points for our purposes and use the rate Freddie Mac quoted, which is, for June 2005: 5.63% and for June 2006: 6.63%.

So, let’s assume both buyers finance 80%. Buyer one back in the bad old “seller’s market” days of 2005 had a monthly (Principle and Interest only) payment of $3,401.67, whereas buyer two pays $3,736.22, i.e., $328.55 more per month. Over the course of a thirty year loan, buyer two will pay that $328.55 more a total of 360 times, which works out to be $120,437.22.

Well, OK, that was a little unfair, since what buyers actually bought was smaller by 5.8%. So let’s work it based on the real average prices of what buyers really bought, i.e., $758,103 in 2005 versus $704,868 in 2006 for 174 square feet less. OK, that’s a little better. Being more fair about it, our 2006 buyer got his 2804 square foot home for 3612.54, only $119.37 more than our 2005 buyer paid for his 2978 square foot home. So living in that 174 square foot less home cost our buyer only $42,973.35 move over the life of the loan.

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