A common question that we get in the mortgage and real estate circles from our home buying Should I Buy Now or Wait customers is whether now is the right time to buy or not. In addition to what you will read here see for more information about buying now.
Should you continue to rent or buy if you have found the home that you would like to buy? It is a valid concern and question given the state of the US economy and housing market, the upcoming Presidential election, the ongoing turmoil in the Middle East etc.
Why are you waiting? One answer is that you are waiting for the housing market to come down some more so you can get a better price on the house. Another reason is that you are waiting to see if interest rates get even lower. You might have some additional reasons, but for now, we are going to discuss these two reasons now.
Will Home Values Continue To Drop
If you rent and are waiting to buy that home that you see as your dream home you might want to think again. The math of it is pretty simple. Let’s just say for example that your monthly rent payment is $1,400/mo. If you look at a year’s worth of rent payments you will be paying $16,800/mo to live there. All you get for those payments is: the thanks from your landlord and maybe either rent receipts or cancelled checks to show proof of your payments. In a purchase scenario, you have $16,800 (say your mortgage is the exact same payment) of principal and interest payments (both of which are financially beneficial to you and far better than the “atta boy” pat on the back you might get from your landlord). And as an added bonus you get cancelled checks or some type of payment history like you do when you rent.
See the tax benefits of owning a home.
Consider this too: if you are waiting for the value to go down some more let’s take the case that you are looking at a home around $220,000. If you wait for the year to go by, how much is the home value going to go down? Who knows, but if we consider 5% as a decent drop in value that’s $11,000 compared to the $16,800 that you spent in rent for nothing. The market has already been going down in most areas in the US; it is going to go down a lot more? Who knows, but it is hard to imagine that home prices are going to continue down forever, or what’s even harder to imagine is that they will never rise again. So while you are waiting to buy, you are not building your future with your equity and home ownership.
Cheapest Mortgage Interest Rates
Yes, mortgage interest rates went down over the last quarter of 2007 and have continued this trend in early 2008. How long with this last? There are many speculations about what is going to happen or how far they will go down: rates will continue to go down because it is an election year, as long as the stock market is rocky then rates will go down, with a poor economy rates will continue down, with the poor performance of the American dollar in overseas markets the interest rates will increase. Who knows what is going to happen.
What we can offer is that we never can quite tell when interest rates are going to go up. Take for an example, on a Wednesday morning in early Feb 2008 interest rates were at the lowest they had been for nearly 3 years (since 2005) for about 2 hours. There was a lot of buzz in the industry as rates were very low and the thought was that this would spur folks starting to buy homes and refinance. Well, about 2 hours after the rates bottomed out, they day saw 4 emergency price increases and the rates have not been close to those low levels since. I know the owner of one Mortgage Company did not even get his loan locked in time and it cost him about $200/month in payment in a new loan that he got.
So, if you are waiting for rates to come down more, you might be waiting for nothing. Rates right now (late Feb 2008) are historically very low already. Additionally, if you are looking at your dream home and wondering if you should wait to get a better deal you are perhaps making your landlord rich and delaying your own wealth building.
If you are serious about buying a new home, or refinancing for that matter, do not wait too long as your window of opportunity might close and you’ll be kicking yourself. Do not get caught saying “I should have bought when I had the chance.” Now is your chance!
