Waiting to Buy, Could Cost you Money

On a daily basis I find myself talking to possible first time home buyers about the housing market. Most of them are waiting to make the investment and think that prices will continue to fall. While I can only tell them the conditions of the current market I do tend to emphasis the wonderful opportunity they have right now in terms of interest rates. I do my best to explain that now is the "Best Time to Buy" and that interest rates, while still low, have started to increase, and a rise in interest rates could mean much more than a few $1000 dollars in sales price.

I recently read a blog post by Jay Papason and he broke down the very situation that I try to explain. The next part in an excerpt from his post

Buyers who “choose to wait until prices come down more” are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for a $250,000 home purchase and the relative likelihood of each scenario.





To figure out which was a smarter bet–counting on home prices to fall further or interest rates to rise–our research department took the last ten years of monthly home price and mortgage interest rate data and ran the numbers to see which was more likely: an increase in mortgage rates or a further drop in home prices. Here’s what we found:

1. A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
2. A one percent rate increase more than offsets a ten percent reduction in home prices.
3. When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
4. The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.


I feel that that this powerful information not only for a first time home buyer but anyone thinking about moving up or downsizing. The power an interest rate has on the cost of home ownership over time. If you have any questions about today's interest rates or the current homes on the market in your neighborhood check out my website.