When it comes to buying a home or investing in real estate, there are two matters to always consider.
The price of Real Estate versus the price of money.
In the last couple weeks, interest rates and long-term mortgage rates have risen.
30-year Fixed mortgage rates have risen above the the 6% level a few weeks ago.
Wall Street thinks the FED is done cutting rates for the time being as a result of inflation fears, the election outcome and to see how the Housing Rescue bill will take effect.
why is this important when it comes to buying real estate?
On one hand, as Lewis Corcoran, a very talented mortgage broker points out , "We can never expect people to buy homes simply because, as the National Association of Realtors keeps saying and has been saying for 2 years now: "now is a great time to buy a home." as we do not know for sure when and where the bottom will be found.
However, one must also take into consideration that if the experts are correct and interest rates do continue to rise into 2009, then, ...
No matter how you cut it, even if home price remain level or even decline slightly, the actual cost of the home is rising. (Please see Home Prices down Price you pay is Up)
Again, how you finance your home can be as important as the price you pay. The price of money is steadily rising. If we have hit a bottom in real estate prices, then the cost of your home is going up. Period!
If you are in the market to buy and believe that the market has neared a bottom in Phoenix or Scottsdale or Fountain Hills or any town in your area; If you find a home that is a good value for you and your family that offers you a place to live, favorable tax treatment and you can lock in an affordable 30-year or 15 year fixed monthly mortgage payment , then consider making an offer on that home you have been watching.
Again, every situation is different, so please speak with mortgage and real estate professional to help evaluate whether now is the right time to buy.
Related Posts
- Dear Mr. Bernanke, Phoenix Real Estate needs an interest rate cut
- 5 Reasons to Buy a home in Phoenix
- Is Alan Greenspan to blame for the Housing crisis?
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Copyright © 2008 By James Wexler, All Rights Reserved. *The Price of Real Estate vs. The Price of Money*
Contact James Wexler (480) 221-8080 for all your Phoenix | Scottsdale Real Estate needs
james - as a mortgage professional I understand your point. and you are exactly correct. How you finance your home is, in most cases, (unless you are flipping your house - which most people are not these days) is more important than the price you pay. It is a challenge to explain this to most borrowers who just can evaluate todays price versus total future payments. Though, if interest rates go up , then the monthly payment amount is something tangible that borrowers can understand.
James - Good point about the cost of borrowing money rising therefore affecting monthly payments and the total amount paid in the end.
judy - these days people have to think about staying in their homes quite a bit longer , as a result, your interest payment can be more signficant financially then the price you pay.
wex - glad you brought this up. as people wait to buy houses because they think prices are going to drop. and prices do not drop and interest rates rise. They may price themselves out of the home they had been waiting to buy.
mr. ladarski - guessing about interest rate direction is a tricky game. You can only base your decision on what you know today. If the house looks like a good deal to you, and you can lock in a great fixed rate mortgage in which you can easily afford the monthly payment, then go ahead and buy. If rates go up, and prices stay same, you may no longer be able to afford the home.
Good information. Something for all of us to think about. Thanks for the post.
Jeff - I should have also shared the opposite example. As we have seen rates drop sharply today, the house you were thinking about putting an offer on this past weekend, just got less expensive. So , if you are on the fence, that new low fixed mortgage rate may make the difference
Great post - we use graphs and amortization schedules to drive home this point. Price is just one component to the purchase decision. If you stand on the sidelines, you may have difficulty obtaining a loan (ie. changing underwriting guidelines) and may pay thousands of dollars more for the home (ie. increase in interst rate).
Ryan - graphs are a great way to show clients ( in a visible format ) the value of money now versus what a home may cost you later if interest rates rise.
The price you pay is often secondary to the structure, interest rates, fees, etc.. of the mortgage