I just read an interesting article about trying to time the real estate market, especially in a time where everybody is talking about the subprime mortgage meltdown, the credit crunch, recession etc. Many of our buyers are inclined to wait buying their next (or first) home because prices could fall more and it might pay off to wait a year or so. Question is - is that really the case? Well, consider this:
Let’s say you are emotionally and financially ready to buy a home, be it the first time or second or third and you plan to stay put for at least 5 years. You found your dream home for a list price of $300,000. You could put 20% down and would get a 30-year fixed-rate mortgage. With a current interest rate of 6.25% and a loan amount of $240,000 (80% loan to value on $300,000- purchase price) your monthly principal and interest payment would be $1,477.72
Let’s say that in 12 months from now the market actually does crash and the same house would sell for 10% less i.e. 270,000, but by then the low rates that we have now are gone. So, anything you gain by a further drop in prices might be offset by rising financing costs. If mortgage costs rise just one point, to 7.25% and you stayed at the same 80% loan to value ($270,000 x .80 = $216,000) your payment would be $1,473.51. You waited one year to buy, saved about $4.00 per month and spent a year living someplace you’d rather not be.
So, trying to time the real estate market might not pay off. What do you think, does that make sense? Give us a call if you are emotionally and financially ready to buy a home.