This article is a continuation of a previous article called: Personal Opinion No Better Time Than Now To Buy A Home. Please read it to catch up.
Wait For Values To Go Down More?
I am going to address this question with an example of how waiting could hurt you. The assumptions that I'm making is that home prices will go down a little more 7.5%, and interest rates could go up a maximum of 1% from 6% to 7% before I decide to buy a new home. I'm going to compare different mortgage amounts based on different sales prices over a 7 year period. I picked 7 years as this is on the long end of how long an average homeowner owns their home or keeps their original mortgage before they refinance. I am also considering only 1 mortgage with no down payment for 100% financing. This is a little unrealistic, but the mortgage numbers are the same no matter what.
- The home I am looking to buy is currently listed for sale at $200,000, so I'll use that as my starting place. At 6% borrowing $200K for 30 years I'll have a monthly payment of $1,264. This includes my principal and interest. Over the course of 7 years I will pay $80,002 in finance charges and $20,722 in equity.
- Now I wait because I want the market to bottom out. During the wait, the sales price of the home I want goes down 7.5% to $185K. Good for me, but during the wait, interest rates went up to 6.5%. I will also give you figures for 7% so you can see what might happen if rates go up even more. Neither of these increases are out of question in today's volatile mortgage and interest rate markets. The payment for this new mortgage of $185K at 6.5% is $1,199; again principal and interest. Over the course of 7 years I will pay nearly $85,673 in finance charges and $$17,731 in equity.
- Now let's go with the same scenario with the 7.0% interest rate. My payment in this case will be $1,230 and over 7 years I will pay $87,026 in finance charges and $16,378 in equity.
Do you see the differences and what I am planning on doing? I am leaning towards buying now because in the long run, buying a little more expensive home with a cheaper interest rate has me paying a little bigger monthly payment, but less finance charges and I make more in equity than if I wait and prices go down while interest rates go up. I was really surprised when I sat down and did the math to see what I might do with how the market looks now.
Nobody Can Tell What Is Going To Happen With Real Estate
The bottom line here is this: nobody has a crystal ball and nobody knows what is going to happen with real estate and interest rates in the future. Prices can move, but worse yet is that interest rates can go up. So what if you buy now and values go down some after you buy. If you are like most U.S. homeowners, you are likely to keep your home for 5-7 years which should be ample time to ride out any real estate cycles. If your family needs to move, then move. Why keep worrying about a market that is unpredictable?
If you buy a home now and someone asks you why, you can tell them this: "Because the market was perfectly timed for my family. How is your family by the way?"
Article written by Ben Daniels. Ben has been a real estate agent for 15 years and has seen several real estate cycles come and go.
PS: If you are thinking of buying a home do your research. There are many good resources online. Keep reading the Home Buying Articles on GetPreQualified.com and look for properties on PropertyNut.com. Happy House Hunting.
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