The most common question that I am asked is “how is the market?” Most people are just looking to make small talk and what else do you say to Realtor, right? I have one client that’s a ‘good ole boy’ and he just cuts straight to it; “Hell, are you makin any money?” You have to love his honesty.
Every indication, from the most recent unemployment figures to the release of the most current S&P Case/Shiller Home Price report point to additional declines in home prices. “It’s never been a better time to buy!” Really?? Let’s assume however that you have all-ready made the decision to purchase a home and this recent economic data has caused you to pause. What if the question is, “should I buy today or should I wait until next year?” If you plan to finance your home purchase, then I would suggest that now is the time to act.
Lets assume that you would like to purchase a home TODAY for $400,000. You have one friend saying, “wait another year, prices will go down another 10%”. Another friend tells you “hurry, interest rates are going to rise!” What if both friends are right?!
Scenario #1 – Let’s assume you purchase a home today for $400,000 using an FHA loan. With a 3.5% down payment you would be financing $389,860. TODAY, you could easily get a loan at 4.5% interest and your MONTHLY principle & interest payment would be $1,975.
Scenario #2 – Let’s assume you purchase the same home 1-Year from Now for $360,000 using the same FHA loan. With a 3.5% down payment you would be financing $350,874. However, you have an interest rate of 5.5% which makes your Monthly principle & interest payment $1,992.[hr]
In my opinion rates trump prices at this moment in time. You can see from the above example, assuming prices FALL by 10% and rates rise by a point, you will have succeeded only in waiting. You would be in essentially the same position and still without a home.
When you get right down to it, this is a difficult time both locally and nationally. I try to be an optimist but I can’t bury my head in the sand. Certainly as a Realtor, when I am asked about the market I try to give people a positive way to look at current negative economic conditions. People are interested in whether or not your perspective takes in the bigger picture, or are you just anxious to create a sale and make a commission.