BY GORDON HUNT | DECEMBER 2008
FACT: The price of a home would need to drop by a full 10% in order to compensate for an increase in mortgage interest rates of only 1%...
$500,000 home @ 6% = $2,997 monthly loan payment
$450,000 home @ 7% = $2,994 monthly loan payment
This example stresses why home Buyers and Sellers that are waiting should be more focused on interest rates than on price at this point in our market. Prices have dropped to a level where buyers are now well within the safe zone to invest in our cyclical real estate market.
It is much more likely that interest rates (predicted to rise by 2% by summer '09) will have a much larger impact on the cost of a home than hoping that housing prices in Salt lake will drop an additional 20% in that same period to make the wait worthwhile, and in fact poses a great risk by not taking advantage of current conditions.
It is impossible to time the market exactly and by the time you realize that prices have bottomed out, they have already started to rise costing you benefits. Therefore, buy in the safe zone and begin taking advantage of all of the benefits that motivate you to want that new home (better neighborhood, new school, more space, less commute time, tree-lined street, etc.). Over the long run, real estate appreciates and increases in value due to inflation, you build equity by paying down the loan principle, and the tax advantages benefit you financially as well. It's a buyer's market, so buy now and don't risk the mathematics working against you by waiting.
Sellers... since you can't buy low and sell high at the same time, take advantage of low interest rates to keep the wide audience of buyers who can qualify to buy your home. This also keeps your payment low on the home you are moving to. Also, conditions favor those changing to a more expensive home, as the loss in selling will be more than offset by the savings in buying. Also, keep in mind that so many sellers are waiting for conditions to improve, that when they try to, there will be such an abundance of homes for sale that will pour onto the market that prices may not rise again for 5 more years according to many experts. And what will interest rates be at that point?
When you run the numbers... Now is a really good time (relatively speaking) to buy and/or sell your home.
CHAPMAN-RICHARDS & ASSOCIATES
THE FINEST COMPLIMENT I CAN RECEIVE IS YOUR PERSONAL REFERRAL!