Friday, March 20, 2009
There has been a lot of talk lately about whether now is a good time to buy a home or if it is better to wait. This is the $1,000,000 question that burns within each of us looking to invest in real estate.
What needs to be considered when pondering this topic is the affect that real estate sales have on interest rates. When housing sales grow stronger, interest rates typically rise. It’s the old “supply and demand” model at work.
So let’s take a look at a few examples so you can see for yourself how this might affect your decision to buy now or wait:
Example of Current Market:
Property price (financed): $200,000
Interest rate: 6%
Monthly payment: $1,199
Scenario #1- Property prices fall 5%, Interest rates increase 0.5%:
Property price (financed): $190,000
Interest rate: 6.5%
Monthly payment: $1,201
Scenario #2- Property prices fall 10%, Interest rates increase 1%:
Property price (financed): $180,000
Interest rate: 7%
Monthly payment: $1,198
As you can see, the monthly payment isn’t dramatically affected by waiting. However, when activity begins to pick up again (and we’re already seeing signs that this is happening now) the buyer’s “price advantage” disappears. This translates into a higher price paid once the spring/summer demand picks up.
So if your monthly payment doesn’t change by waiting, it all boils down to whether you’re the betting-type or not? The upside to waiting is that you might get lucky and shave 5-10% off your purchase price. The downside, which seems to outweigh this assumption, is that if you wait until demand begins to escalate, you have effectively missed what are currently great buying “deals” on the market now.